Taking Julian Stevens’ letter first, I do not seek to judge individual advisers but the financial services business itself and, like Mr Stevens, I have also experienced difficulty in charging fees in the past.
That said, many IFAs have overcome this problem and have either moved over solely to fees or have fused their remuneration by charging a mixture of fees and commission.
We strongly believe that, as IFAs work for their clients, they should be remunerated by fees only and perhaps now is the time for all IFAs to make this transition on an appointed day.
Clients would soon get the message and there would then be a much clearer distinction between IFAs and product sellers.
Of course, IFAs that rely on commission-related volume business, such as networks, may find that this would not suit their business model, particularly if their business also needs personal loans from product providers in the form of indemnity commission. The IFA sector would probably shrink as a result but this may not be a bad thing for clients as volume commission negotiations may then be squeezed out the system
Mr Stevens raised three product-related sales scenarios: 1: the need to protect a mortgage against the problems that would be caused by serious illness, 2: setting aside money on a regular basis to ensure a secure retirement, and 3: the need to get a better return on inherited money than a bank can provide.
Well, the advice, products and providers are unlikely to be consistent from IFA to IFA but, on the assumption they are, could it just be possible that a product may not be the best advice in each instance? Particularly scenarios 2 and 3 – cynical maybe, but how many people can look forward to a secure retirement and, with the current market depression, some clients may be wishing they had kept their money in a competitive bank account.
In scenario 1, it appears that critical-illness insurance or PHI or MPPI/ASU, or a mixture of these, will do the trick. However, how many IFAs have actually read and understood all of the terms and condition relating to such policies and also undertake comprehensive regular surveys/ comparisons?
Some may recommend PHI, as that usually provides better long-term income protection, although it is more complicated to explain and underwrite. Or would the MPPI/ASU product be an easier sale – good value until the insurers try to avoid paying a claim?
Perhaps Mr Stevens is right in that financial services Utopia is never going to happen.
With regard to hourly fee rates, this depends on the nature of the work under-taken and we would suggest that Mr Stevens carries out some internet research on successful fee-charging IFA practices.
Mr Stevens reviews his clients’ investment portfolios at least once a year and we assume he perhaps receives fund-based commission to cover this cost. However, the time it takes to review clients’ funds will not usually be proportionate so it is unlikely that a review for a client with funds of £200,000 will take double the time of a client with £100,000. So it would seem more appropriate to charge fees for the review and recommendations but until then it seems reasonable to cap such commission relative to the time spent.
With regard to Mr Jamieson’s letter, he is right to state that independent advice should be best but there is no guarantee that the advice will be impartial and better than that of an up-market direct sales consultant, even if the independent IFA really does research the whole of the marketplace.
With regard to with-profits funds, it is encouraging to learn that Phoenix produced such a good return but I have personal knowledge of a London Life 25-year low-cost traditional with-profits endowment policy with LAPR returning £22,600 on a target amount of £26,500, around £20,000 below original expectations of £45,000.
I agree with Mr Jamieson that there are still some good reasons for recommending investment bonds but the point I was making was that it is wrong that the value of a product can differ so much from adviser to adviser subject to the level of commission taken. If you buy a 420g can of Heinz baked beans from Asda, you will expect the same quantity and quality if you buy a 420g can from Tesco but there will usually be a difference in the total cost of the can. You would not expect there to be up to 7 per cent less beans in the can.
It is good to read that you are giving back to the community by occasionally working with the Citizens Advice Bureau. In my own way, I am trying to improve the financial services situation for the disadvantaged.