There has been much debate about adviser charging since the FSA issued its consultation paper last June. In fact, there has been a lot of debate about whether the RDR will happen, given a potential change of government and possibly regulator.
The way I read it is that, even if the name above the door of the regulator does change, the basic principles of improved professional qualifications and charging for advice rather than products will not change.
One of the first things that I routinely discover in discussions with IFAs is that, of the two of us, I am the one who has read the CP document. Now, I know it is long and not exactly riveting and I also know that if everybody read everything that the FSA churned out, nobody would do anything else. However, this is quite important. Edited highlights are, of course, available everywhere although relying on any interpretation other than the horse’s mouth is surely dangerous for something so radical.
There are two other fairly consistent themes to these discussions.
The first is that the IFA will often tell me that they already agree remuneration with the client and that adviser charging will therefore not be an issue for them. If that is the case, I cannot quite understand why there is so much com-ment about how the FSA is forcing IFAs out of the market and orphaning a big number of clients.
The second is that every discussion about remuneration revolves around a product in one way or another, as the means by which they are remunerated.
Hmmm. Maybe that is the reason for the debate. Research suggests that what the consumer values from an IFA is the advice itself, the expertise and time that goes into that advice. The implementation of the advice or setting up a product is not that important to the client and yet, as far as I can see, in many cases, IFAs will not be rewarded for that advice unless or until a product exists.
Routinely, I get questions such as “how much should I charge for a £100,000 investment case?”. For me, this is the wrong question because surely what the regulator is advocating via the RDR is that a consumer should be paying for what the adviser knows (hence the qualification requirement) and the time it takes to apply that knowledge to that consumer’s circumstances.
Whether the end result is that the client buys a product and what that product should be is pretty much immaterial and the IFA’s charge for setting up a product, one could argue, should reflect that with a token administration fee, say, £100?
The rest of the remuneration to the adviser has been outlined up front and reflects the value of the different stages of the advice process and the quality of the adviser’s knowledge.
Try thinking about a world not just without commission but without products. In that way, and I think only in that way, can IFAs stand a chance of making the mental transition to adviser charging so that they can start to work on the practical changes needed to make it happen.
Martin O’Connell is the managing director of ProVision Business Consultancy