The industry has been asking itself a lot of questions recently. As the Sandler consultation period closes, the ever-topical issues surrounding IFA remuneration have been given a good airing. But have we come up with any answers?
My opinion (and one which is widely reflected in Charcol's business strategy) is that there is, and should be, more than one answer to the remuneration issue. It should be for our clients to decide. At Charcol we see our role as providing the platform and the consistent quality of advice to underpin this choice.
Sandler talks about remuneration in terms of awareness, transparency and individual choice rather than rights and wrongs. The initial consultation document recognises that any reputable IFA bases advice on what is best for their client with very little thought of the remuneration payable to them.
This is because they realise that the key goal is to build long-term relationships with clients and obtain referrals from those satisfied clients. Giving advice on the basis of receiving higher commission is short-sighted and outdated.
However, Sandler believes that the real issue is consumer perception. If existing or potential clients are uneasy with commission-based advice, this has to be dealt with by the IFA business and the individual adviser head on.
For example, at Charcol we pay our advisers a higher than average salary with the level of commission capped to eliminate even the slightest suspicion of product and provider bias. It is then up to the individual adviser to state clearly the two sides of the argument so that the client is empowered to choose what is best for them.
The argument for fee-based advice is compelling. The provision of independent financial advice is a professional service, akin to the legal or accounting professions. Today's financial market is complex and providing a comprehensive search of the market, making recommendations and ultimately delivering a product to a client is a lengthy process.
To ensure that the advice being given is of the highest standard, the advisers have to be continuously trained. They need high-quality support staff and a business geared up to considerable and continuous investment in research and systems to deliver the right and most up-to-date market and product information.
A customer seeing an adviser about whatever aspect of their financial circumstances – be it pensions, investments savings or a mortgage – will, quite rightly, demand the best advice available. Many clients making important financial decisions on the back of this advice process are understandably reassured by fee-based advice.
The other side of the coin is that certain financial products carry with them more of a “fee mindset” than others.
For example, consumer research continues to reaffirm that, in general, consumers are much more inclined towards paying a fee for products such as mortgages than, say, investments.
Many issues and logical justifications underlie this mindset. But ultimately it means that the IFA's business strategy must be flexible and transparent.
The Charcol brand tends to attract a relatively financially sophisticated consumer. However, even within this consumer group, the issue of advice for a fee or advice for free comes down to a mixture of individual psychology and product stable.
Take mortgages as a case in point. For those clients who wish to go through the in-depth advisory process, which entails a fairly labour-intensive (certainly from the adviser's perspective) faceto-face process, a competitive broker fee is acceptable and indeed reassuring.
Alternatively, those consumers who feel more confident about relying on their own knowledge of the market and are comfortable transacting online can buy the same products online for no fee but in the knowledge that there is a skilled team behind the sce-nes to help them through the process.
This is an approach that is proving to be highly effective for both our customers and us. Indeed, on the wealth side of the business, we have gone one step further – becoming the first financial services provider to offer fully regulated online advice on stakeholder and within our Isa fund supermarket.
Clients are individuals with different approaches and different comfort zones. That is why Charcol's business strategy offers both the fee-based, comprehensive face-to-face advisory process and the fee-free online regulated advice approach.
So, the next time you want to know your right answer to the remuneration issue, just ask your client.
Colin Bell is sales manager at Charcol