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Value for money – Tony Wickenden

Last week, I looked at dep-olarisation and the opportunity for advisers to reconsider their business model. I ended by pointing out that it is important to bear in mind that if an adviser is to implement financial transactions and wants to choose from products across the whole market, then a fee-based option must be offered.

For these advisers, whe-ther they are remunerated exclusively by fees, by fees subject to reduction by any commission received or purely by commission – having, of course, offered a fee option and the client having declined it – then it will be absolutely necessary for the adviser to be able to justify the amount that is being charged either directly to the client or indirectly through higher commission payments being received.

Increasingly, clients will be questioning the value for money that is received. This is hardly surprising given the increasing amount of publicity given to this issue and pressure being placed on advisers to justify payments received by reference to value given.

The latest evidence of this comes in the Treasury select committee’s report on commission and, in particular, the receipt of trail commission.

It seems to me that the issue of the justific-ation for trail commission is the same as that for ordinary initial commission, namely, in relation to the amount received, is fair value delivered by the adviser?It is thought that most who choose to offer an advice-based service will also offer, as part of that service, the implementation of the financial plan that is constructed.

In other words, such advisers will also choose, where appropriate, specific financial products and execute transactions to put those products in place.

It would be surprising if this was not the case, given that product selection and implementation is a key part of what most advisers do in the current environment.

Within an advice-based business model, it is also thought that the majority, particularly those who are currently IFAs (as opposed to tied) will choose whole of market status, at least at the outset. This is, after all, the status most consistent with the offering of holistic financial advice.

This is not to say, however, that there will not be some cases where an advicebased model is offered but the adviser chooses to be a “limited range adviser”.

Regardless of this choice of status, however, the tax implications of the financial advice given and the financial products selected as part of that advice is a very important issue and one that can have a signif-icant impact on the client’s absolute returns.

This leads the adviser to another important decision – whether to take all responsibility for researching, keeping up to date on and applying tax knowledge or whether at least part (but possibly all) this function is outsourced to a partner (specialist) business. A similar choice may also exist in respect of investment management.

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