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IFP’s view

One of the astonishing parts of the recent ABI report on commission is the assumption that there is still a fee versus commission debate. It is surely time for us to move on to a debate that focuses on how advisers can be paid effectively and fairly for the work they do with clients. To enable this to happen, there has to be a form of commission that rewards the selling of products

The Institute of Financial Planning has hundreds of members which are successfully running or building fee-based businesses. This does not mean they are not using commission in any form. However, they are describing their planning service to clients and discussing the fees that will be charged for the provision of that service. How the client pays will depend on the nature of the business they transact and what is in their best interests.

Clients are prepared to pay for a service that they can understand and value. If there is no value, nobody will pay a fee. There is no value attached to selling a product. Value is derived from strategic planning and providing the client with a professional service that suits their circumstances and budget. It also has to be profitable for the planner providing it.

Life offices are obviously struggling to make money on some contracts and need to rebalance their books. Moving away from indemnity commission for certain market sectors has to be within their objectives. Trying to suggest that the IFA market could survive such an impact when it is so undercapitalised and incapable in many cases of going through the cultural change required to offer a comprehensive fee-based business is fanciful in the extreme. The IFA market needs a lot more support to help those that want to move to the fee-based model. The IFP will be running a series of six-day courses starting in June to help firms with the transition.

The menu of charges needs to evolve as feedback dictates how effectively it is working. Instead of the focus being on price, there is now responsibility on the adviser to articulate to prospective clients what they do and how they are going to be rewarded for their service. This is where the education process starts for the client as they learn to understand the different types of service they might expect to receive. The market is undoubtedly going to repolarise to acknowledge those who are providing an independent service and those who are providing financial solutions which are still transaction-based. The former will need to have a fee structure and the latter will continue to get rewarded for the products they are selling.

The hope is that through this transition we will see the overall quality of financial planning improve so that all types of adviser serve the client better. The challenge for firms is to define their service properly and then be able to market it effectively. The challenge for the ABI in its consultation is to get the exact nature of the debate correct so that any changes suggested will benefit all sectors of the market.

Nick Cann is chief executive of the Institute of Financial Planning

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