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Royal London wants all IFAs to adopt fees

Royal London is calling for all IFAs and product providers to switch to charging fees over commission in what it says is a major policy statement.

The Scottish Life parent says fees are preferable to commission and financial products should be used as “feegenerators”, where bespoke charges to clients are built into product design to meet the cost of advice.

Royal London argues that providers should not restrict adviser remuneration and consumers should be given the option of generating fees within products, which normally reduces the cost of advice.

Royal London also claims that, under fee arrangements, it is often more expensive for individuals to pay for advice via a fee because of VAT implications and particularly in the case of pension products where tax relief is available on contributions.

Scottish Life head of pensions strategy Steve Bee says: “By using commission, or fee-generation as it would be called, clients get the Government to pay a slug of the commission in tax relief as opposed to having to pay VAT on top of their fee.”

Informed Choice managing director Nick Bamford says: “This is a good idea but it is not new. We have been doing this since 1994.

“We agree a fee based on the time taken. This works for investment business but would not work for stakeholder and term insurance, where you could not justify taking a fee.”

Winterthur Life says it has been taking the fee-generation approach since it introduced its flexible adviser remuneration system 10 years ago.

Product development man-ager Angela Baskeyfield says: “It was radical when we first introduced it. The fee, which is unrestricted and is paid as a direct and open charge rec-eives the same tax treatment as commission but is negotiated between clients and advisers.”

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