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To fee or not to fee?

As part of the FSA&#39s wide-ranging review of polarisation, it has published research in CP121 indicating that consumers prefer to pay fees for financial advice.

The FSA was unable to tell Money Marketing what percentage of people would pay fees but does say it conducted 36 face-to-face interviews and four focus groups of 10 people each. This contrasts with Swiss Re&#39s insurance report for 2000 which found only a third would pay fees. Swiss Re is prepared to say how many people it questioned – it sampled a total of 1,027.

IFAs are unsurprised that such a major piece of research contradicts the FSA findings and believe it is unlikely that attitudes have changed significantly since 2000.

While recognising that some clients prefer to pay fees, they are amazed the FSA can suggest that all consumers are at least willing to consider paying fees.

IFA Hunter & Co principal Robin Hunter says: “Corporate clients are okay with fees. A handful of high-net-worth clients are okay with fees. The rest of them are not, however.”

Baronworth Investment Services director Colin Jackson says: “I would be interested in seeing what kind of research they have used. I totally disagree with their findings. I have 20,000 clients who I have been advising for years and none of them would want to move to a fee-charging basis. With all market research, the response is often dependent on how the question is asked.”

According to the consumer survey carried out for CP121 by polling company Orc, the majority of respondents said they preferred to pay a fee and everyone said they would be willing to consider paying fees.

The consumer research released with the consultation paper says: “Most were willing to pay a fee provided they would receive good, value-for-money service, the fee was reasonable in relation to the product, circumstances and expertise of the adviser, fees were transparent and discussed up front and full fees were charged only if the advice was taken.”

Nowhere does it provide hard figures about the numbers of people willing to pay fees. There is simply a catch-all statement saying the majority of respondents prefer to pay a fee.

Even if the assumptions are true, there is a big difference between saying one is willing to pay in theory and one&#39s reaction when actually handed a bill.

Aifa director general Paul Smee says: “I do not question that the people who said they are willing to pay fees were willing to pay fees at the time they said they were willing to pay fees. But in practice I do not think they are. All the experience of the market shows they are not.”

Swiss Re&#39s Insurance Report 2000 found that only a third of respondents were willing to pay fees for financial advice. The same research revealed that just six people from a survey of 1,027 were prepared to pay more than £150 for financial advice.

The only glimmer of optimism for fee-based advice was the fact that nearly 60 per cent of respondents did not know how they felt about paying fees, which Swiss Re concluded could be interpreted to mean they could be persuaded to begin paying.

For its research, the FSA ran four discussion groups with people of varying degrees of financial sophistication and then conducted 36 face-to-face interviews. From this limited pool of respondents, the conclusion has been made that consumers are willing to pay fees.

The Swiss Re research asked similar questions of more than 1,027 people and its findings were substantially different from the FSA&#39s. True, its work was done two years ago but it seems unlikely that the prevailing opinion of consumers would have altered that much in only two years.

Swiss Re technical manager Ron Wheatcroft says: “It would be quite interesting to see what the FSA&#39s socio-economic group looked like. Our research suggests there is still massive resistance to fee-paying.”

IFAs appear to agree with Wheatcroft. Franklins Financial Services partner Neil Franklin says: “There is no evidence of people&#39s willingness to pay fees, in my opinion.

“It is not true that customers want to pay fees, it never has been true and never will be true.”


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