The Olympics has left many of us with a can do approach – maybe not for ever but certainly for the rest of the very-late-to-arrive summer. As the capital is full of cyclists, it is also seems to have made the world and his wife think they are Chris Hoy.
Athletes who succeed work to a plan that keeps them focused and on track and I had hoped a similar discipline existed when the idea of adviser charging was brought to the market.
Sadly, this has not been the case so far and we have had the debacle of the wrong ABI committee signing off adviser charging, only to have them suggesting that they had concerns but no word of how these concerns were going to be addressed.
When adviser charging is considered from the client’s perspective, it does not look like a great deal. For example, with investment bonds (another sterling piece of negotiation by the ABI, not) any adviser charge will reduce the annual withdrawal, so an ongoing charge of 0.5 per cent is going to be seen as a 10 per cent charge on income or worse as if the bond grows.
Take a charge greater than 0.5 per cent and a high rate of growth and your annual allowance will be reduced to a pittance.
We now have the situation where adviser charging is not always in the client’s best interest and maybe this is what has always been intended. Not that I object. When CP121 was in play, we found ourselves with the menu. The FSA told me at the time that the menu allowed the industry enough rope to hang them. They also said that they would get back to fees for advice in time. Given the logistical mess that is adviser charging, fees must be the easier option for many – although not for most network members as their leaders could not hope to manage such a system without significant monetary leakage.
So if adviser charging is such poor value, how long will it last? I suspect that many providers will opt for gross adviser charging, where they wait for the cooling-off period to elapse, then pay over the adviser charge. The other option is a net adviser charge, where the adviser charge is payable without delay.
Taking the adviser charge from a plan where there is a tax advantage, such as an Isa or pension, is not in the client’s interest either.
Although the pension contribution is relieved, there remains the loss of the net premium’s tax-free growth and with the Isa the loss of the growth too. Does this mean suitability will need to include the preferred adviser charge in the analysis?
And, lest we forget, as we talk of the perils of transition, we should not forget those advisers working in a fee-based firm where commission offset is used. They, I fear, will find transition a real mountain to climb, especially if they have been taking full commission and over offsetting for some time.
Whatever happens, it is clear that change will be ongoing so advisers will need to review their business regularly, as a matter of course, and not leave it till it is a matter of necessity.
Adviser charging is not the only problem. The situation is even worse when we consider its corporate neighbour consultancy charging but that is for another day.
For now, we need a positive attitude; the RDR remains but is an opportunity, not a threat.
Robert Reid is managing director of Syndaxi Chartered Financial Planners