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Halo, goodbye

Fee-based advisers are under attack for having ‘holier than thou’ attitudes, says Nicole Blackmore.

Warwick, chairman of Warwick Butchart Associates, says it is too simplistic to suggest that impartiality is not possible in a commission structure and that fees are beyond reproach.

He is adamant that advisers can behave professionally or unprofessionally, however they are paid, and insists that many consumers actually prefer a commission-based payment structure.

He says: “Some of us have been around for long enough to appreciate that to some consumers – and not only the less well-off – commission represents the easy payment method.”

Warwick says banning a simple form of payment is not in consumers’ best interests.

But Informed Choice managing director Nick Bamford is sceptical about some of Warwick’s views. He says there is a lot of very entrenched opinion about what clients want which does not fit with his experience.

He says: “I think what you hear very often is a justification for a particular business approach. When I hear advisers say clients will not pay fees, my only response is that is interesting because we have found the complete opposite.

“I think the suggestion that clients who do not have a massive amount of capital to invest or a huge portfolio of pension arrangements will not pay fees because they are earning average wages in my experience is patently wrong. They will do.

“I think the reason it is being said is because the client will not pay a fee which is equivalent to the commission the seller would have earned had he sold them a product.”

However, Bamford concedes it is not necessarily true that a fee-based adviser will be better than an adviser who is remunerated through commission. He says: “I think it is about full disclosure and about being proportionate. Clients should know exactly what they are paying for and they should pay a fee or commission that is proportionate to the work being delivered to them. If you can satisfy both of those, I think most clients are satisfied.”

Calculis director Alex Pegley says a minority of fee-based IFAs think they are “holier than though”. His firm charges on a percentage basis through factory-gate-style pricing but he says the cost would work out the same whether paid by fee or commission.

Pegley says: “We are fee-based advisers but typically our fees come in the shape of commission. People still are not ready to pay a lump sum for financial advice.

“I find that my clients are perfectly happy to pay what I say but typically it works best in the shape of commission. So if I am taking 2 per cent for an investment, I will take it as a commission and it actually gets paid. If I bill this guy, very often it does not get paid.”

Personal Finance Society chief executive Tim Eadon supports factory-gate pricing and says the debate should be less about commission versus fees and much more about transparency.

He says clients should not only be aware of what they are paying but also the value of what they are paying for.

“I really am against anyone who is pertaining to offer free advice and not making it clear to the client that the commission that they are getting paid is actually the client’s money.

“I am really against the line that says: ‘Don’t worry about paying me, client, because the provider is paying me commission to cover the cost of my services.’

“The underlying fundamental message is commission is the client’s money, it is not anybody else’s, and it is the client who should decide how they want to deal with that cash. So this is where I actually support factory-gate pricing to a great degree.”

Eadon says he is fundamentally against product or commission-led sales as he believes they undermine professionalism and that while commission still has a place to play in the marketplace, fees can be more appropriate in certain circumstances.

He says: “Higher-net-worth clients are probably more likely to want to accept fees or are more likely to be able to pay fees because that is the environment that they have been used to. If they receive advice from a professional, they would expect to pay a fee.

“If you have individuals who still need quality advice but are unable to foot the bill themselves, why would you socially exclude them purely because they cannot afford to pay directly?”

Eadon agrees that clients cannot guarantee better advice from a fee-based adviser but says anecdotal evidence would suggest that fee-based advisers tend to be better qualified. For example, the majority of chartered advisers are fee-based.

With the FSA’s retail distribution review set to kick off towards the end of the month, the fees versus commission debate will inevitably rumble on.


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