However, I feel I should correct his assumption that the pension plan under discussion with my client operates along the lines of what Nick refers to as “impure CAR”.
In fact, it operates exactly along the lines that Nick describes as pure CAR, namely an agreed percentage of (in this case) the first two years’ contributions, with all the balance being invested.
The points that Nick suggests need explaining to the client look to me principally like the list of ingredients for a thor-ough and thoroughly researched letter of recommendation so on that front we are in complete agreement.
Where I think many IFAs will have some trouble is the idea of getting a prospective client to pay (in full) just for advice, irrespective of whether s/he elects to undertake any product transaction as a result.
I suggest that your ordinary Joe, who is considering but is not yet sure about committing, say, £150 a month to a retirement savings plan, is rather unlikely to be willing to pay several hundred pounds worth of fees up front just to find out whether or not such a step is one that he is ready to take.
Such a proposition may work for advisers based in the affluent Home Counties with access to a large pool of relatively high-net-worth clients but most of the rest of us have to approach each of our prospects as having finite means to pay up front for pure advice, however worthy the concept may be.
Having said that, I agree absolutely with Nick’s suggestion that open and defined costs for advice as well as product research and implementation have to be the way forward for all firms who want to hold themselves out as professional advisers as opposed to mere product brokers.
The transition to such a model cannot happen overnight but we need to be thinking about how we are going to get there.
The first step that we took several years ago now is to charge a (usually fairly nominal) report fee and, if the implementation of a commission (or CAR as it is now becoming) generating product is the result, we take a case by case view on how the fee already paid can be offset against whatever money comes to us out of the product.
This is, I admit, perhaps open to criticism as being decidedly impure CAR but I hope it is at least a sincere step in the right direction and, from experience, I can tell all doubters that the proposition of charging a fee for all the work involved up front to produce a professional report and recommend-ations is received by the great majority of clients as entirely reasonable. Try it and you will see.