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Homes are on the line

The debate about fees v commission is like a persistent and irritating weed that never quite dies off.

I wish that people like Andrew Fisher would just get on with their particular business model without constantly trying to lecture the rest of us that his is the only true remuneration basis for independent and impartial financial advice.

Mike Fosberry says he is a fee-based adviser but is also agnostic about commission, despite having admitted that commission saves the client VAT.

Is he (or any other fee-only adviser) really doing the best by his clients when he bills them £575 for advice that could (assuming the client elects to proceed with whatever product may have been recommended) have been met by commission of only £500? I doubt it.

I had dinner recently with an ex-financial services person and we talked about the state of the industry, including, the debate over fees v commission. He pointed out the problem that a lot of people have with fees in conjunction with the implementation (to use Nick Bamford’s favoured term) of a product is that they perceive two tiers of costs – one to the adviser for the advice and for the cost of the product itself.

That is why so many are happy for the cost of advice (assuming the advice to be product-related) to be bundled into the cost of the product itself, provided that the effects of the commission are clear and simple and do not give rise to disadvantageous terms such as initial units or early exit charges. The former were consigned to history seven years ago and the latter are a feature of only a few investment bond products that are becoming generically less and less justifiable anyway.

So where is the problem with commission? Or fees? Or a mix of the two? CAR solves pretty well every aspect of the debate.

On the subject of capital adequacy, it is interesting to read that the FSA are now belatedly saying the hugely increased requirements they propose imposing on IFA firms “need not be in cash”.

Apart from any personal investment portfolios, for most IFAs, this will mean putting up their houses. What will the FSA do next? Instigate yet another pern- icious hindsight review of something they failed to regulate at the time it was being sold and, when the victims’ IFA practices have folded under the weight of all the “compensation” they will have been forced to pay out, the FSA will force them to sell their homes.

For IFAs, regulation seems to have become more about persecution leading to destitution.

Julian Stevens

Harvest IFM , Bristol

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