Since 1988, I have regularly heard the phrase “We must have a level playing field” and this explains the introduction of polarisation, the buyer’s guide and the independent or restricted labels. But when talking
of a level playing field, the one label I have never managed to get my head round is restricted whole of market – not so much of an oxymoron more of an impossibility.
The struggle to define indep-endence underlines that the answer lies in remuneration and the client’s acceptance of cost for advice, even when the advice is to do nothing.
So, just as CP121 suggested this liability to cost or fees, not commission, was the simplest way to eliminate bias, nothing has really changed. Since RDR, we remain locked into 3 per cent plus 0.5 per cent in the majority of adviser firms and far too many still avoid discussing the cost of advice.
Somewhat surprisingly, a recent issue of Which? actually cited 3 plus 0.5 as what to expect when paying for advice although it did state “to pay no more than this”.
What also came through was the reluctance of IFAs asked about charges to provide examples. In some ways I sympathise as, without that initial meeting, we would not be able get to an accurate cost. Instead, we need to consider providing some case studies to bring alive the value delivered and the charges made in some context.
I recently took a client to see a divorce lawyer. After the pleasantries, the lawyer told him a deposit of £5,000 was needed to get things moving and she would report on any need to top-up and all of this without a blink of an eye.
A new client recently said to me “I know you are busy and you charge by the hour”. So even clients are realising there are no freebies – that is progress. We should not be embarrassed to charge for our skills.
The publication of the recent paper on inducements and conflicts of interest showed that while independently owned firms work hard to remain profitable, the major firms have simply turned to their version of the Bank of Mum and Dad, the providers.
In the early days, the support given to networks and service providers was bordering on madness. In some cases it became more controlled but in others, all too often, the numbers did not add up when the payments made did not align with business secured. The FCA paper on inducements must lead to networks putting up their prices, leading to a reduction in adviser numbers as margins for some disappear.
I close by stating that Steve Webb has made things even worse by not bringing the Treasury along with his capping of charges.
We now face a situation where indemnity commission is being paid for schemes set up pre-RDR which are being used for auto-enrolment which may be caught by next April’s charge cap. If providers think about the problems down the track they may move these plans at worst onto the drip method, paying any commission month by month, as this provides commission terms while avoiding the massive clawback that will emerge as the cap appears.
Robert Reid is managing director at Syndaxi Chartered Financial Planners