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What advisers are saying: Adviser charging – When choice is not a good thing

Phil Wickenden Technical Area 200

While autonomy and freedom of choice are critical to our well being, there’s a glitch: namely, our freedom to choose that which is not in the interest of our well being. Hence the huge value in strong clear advice. Back in the Garden of Eden God pointed out the risks involved in investing in apples given the prevailing environment, recommending a hold strategy. Adam, being one of those DIY types, got a tip-off and hit ‘buy’ nonetheless and we know how that turned out. Free choice.

In our latest wave of research the vast majority (87 per cent) of advisers believe it is either important or imperative that offshore investment products are able to facilitate payment of adviser charges. And there are some providers whose efforts in this space have been well received — nearly a third of all respondents spontaneously associated Axa International as the most helpful in relation to facilitating adviser charging (30 per cent of all advisers). Transact and Skandia also fared comparatively well (hitting the mark with 16 per cent).

Having the option is clearly important, but a large number of advisers are — perhaps unduly — influenced by their clients’ preference for the advice charge to be taken from the product. This is best illustrated by the third of advisers commenting that the ability to facilitate adviser charging was a ‘critical’ factor in solution selection and would exclude providers unable to accommodate it.

As alluded to last week, good advice is more than giving the client what they want, and if paying for advice through the product in any way compromises the outcome then the client needs to know about it. For instance, in the case of a bond where the client is investing for income, taking 1 per cent will reduce the tax deferred withdrawal capacity to 4 per cent which is clearly not in the client’s best interest.

In an environment where every product is clean priced there will be an increasing need to take into consideration tax implications of how the fee is taken. The mechanism for payment is every bit as important (in some instances) as the solution itself and may need to be re-visited as client circumstances change. Having the conversation once and duly bowing to the client’s desire to avoid the pain of writing a cheque won’t be good enough.

Clients may still choose to ignore your advice, and that is their prerogative, but you need to spell it out clearly and, more than ever, record it. The customer is always right — unless they’re wrong, in which case they need to know it.

Phil Wickenden is managing director of So Here’s The Plan phil@soherestheplan.com

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