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Is this the dawn of a new age of fees for advice?

Is fee-based advice set to become the norm for the stakeholder market?

Many IFAs have long accepted their only chance to compete in the low-commission stakeholder environment is to charge clients a fee that covers administration costs as well as paying for the advice.

Now the stakeholder story faces a new twist with Allied Dunbar announcing its tied salesforce will be charging a flat monthly fee for advice on two new pension launches.

Dunbar has said it wants to compete in the stakeholder market with these new pensions and its individual pension plan adheres to stakeholder requirements with a 1 per cent fund-based charge with 100 per cent allocation and no transfer-out charge.

But the life office will charge a separate fee of £2.75 a month to cover on-going face-to-face advice given by its “franchisees”.

The Government introduced stakeholder as part of a drive to get people to take responsibility for their own retirement income but Dunbar believes clients will still require advice as decision trees will not be enough to help consumers fully understand pensions.

Zurich Financial Services press officer Sandra Paul says the life office is aware charging for advice means the product is not stakeholder compliant. But she says the package was decided after extensive research carried out at the start of the year, which showed the monthly charge for advice was the best way to remunerate Dunbar&#39s advisers.

She says: “We looked at whether we should charge a one-off fee or charge throughout the life of the product. After conducting some independent research, we found consumers wouldn&#39t want to pay a fee for something they would not see the benefits of for up to 25 years.”

Dunbar&#39s fee amounts to £33 per year regardless of the investment size.

This sounds like a reasonable enough sum but for clients investing the monthly minimum of £50 it equates to a 5.5 per cent charge for advice, which in comparison with other products operating within the 1 per cent charge, seems very high.

IFAs say this is one of the risks of charging a flat fee and they feel charging should reflect the actual size of the contribution.

Some IFAs have taken the view that Dunbar&#39s “one-size-fits-all” charge is rather simplistic as different clients require different amounts of advice and time spent on their accounts and fees should reflect the actual work put in by the adviser.

But on the whole IFAs have welcomed the move by Dunbar.

Although the independent sector sees Dunbar&#39s move as an unusual step, it still believes a provider acknowledging the need for consumers to pay for advice on stakeholder is a move in the right direction.

The hope is that Dunbar&#39s stance will open consumer&#39s eyes to the reality of paying for advice.

RJ Temple corporate division regional managing director David Dresner Barnes says employers are starting to accept they must pay a nominal fee and Dunbar is pitching its charge at the right level.

However, independent advisers will be able to use the commission paid to them by other life offices, no matter how small this might be, to pay off some of their fees.

But Dunbar is charging the consumers directly and there is concern it could set a benchmark for the value of stakeholder advice.

The sum of £33 per year might cover costs for a large provider, but how can small IFAs survive on such a small amount?

Dunbar says its advisers will be conducting face-to-face meetings with clients but for most IFAs this fee compares to less than an hour&#39s work and is unlikely to cover all the costs incurred.

Michael Philips partner Michael Both says this is one of the problems created by the tied agents being able to call themselves advisers.

He says: “Tied agents do not give advice – they sell. They are salespeople who are remunerated by selling their company&#39s products and it is important clients do not confuse a sales person with an adviser.

“We should stop tied agents from calling themselves advisers,” he said

Dunbar is adamant the advice given by its advisers is essentially t
he same as an IFA. Paul says Dunbar&#39s tied agents only sell a product once a full financial fact- find has taken place.

According to Paul, it does not seek to sell over the internet or telephone, as it wants to build up life-long relationships with its clients.

She says: “Our advisers are only limited in terms of financial options. If a consumer needs a pension then they will be advised to buy one.

“Whether they are tied or not you cannot suggest they are not giving advice. You have to be wary of taking definitions from IFAs.”

The need for advice may increase as the boundaries for stakeholder are increasingly becoming blurred.

In launching this two-charge product Dunbar is deliberately not seeking stakeholder legislation but will still be looking for a piece of the stakeholder market.

IFA Torquil Clark pension development manager Tom McPhail says: “It is amazing how the market manages to find such ingenious solutions. Dunbar has effectively bypassed the stakeholder rules and I can see others going down this route.”

Buy some life offices believe that Dunbar is missing out on the stakeholder market. Standard Life assistant general manager of marketing Graham Storrie says its research shows IFAs and consumers are looking for a simple single-charge product.

Having different charging struc-ture products pitching at the same market is going to make life very difficult for the consumer to make comparisons, which defeats the object of stakeholder.


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