Is Adviser Charging the same as fee charging?
3 Feb
I have said before that I think it may come down to semantics but it is still worth hearing opinions on this.
In your opinion is adviser charging the same as fee charging?
If the cost of advice to the consumer is only payable if the client buys a financial product, is that fee charging?
If the adviser charge is expressed as a % of the amount invested or the value of funds under management, is that fairly described as a fee or do you have a contrary opinion?
Within our firm we charge an explicit monetary amount for the delivery of advice in the form of a project fee and fairly call that “a fee”.
For Implementation and Review services we charge a percentage of the funds invested/assets under management and use adviser charging to be paid on that.
We don’t specifically refer to those payments as “fees” but in your view can this be called a fee?
Remember we are not debating the rights and wrongs only sharing views.
In my mind, charging a fee conjurs up an image of a client paying a fixed price for a service, as one might pay a solicitor for writing a will. Adviser charging implies far more flexibility, such as a flat fee for a service, and/or a fixed or tiered percentage of invested funds, or even other charging methods. No matter what it is called, the clearer a client’s understanding is about how much they are paying, and what they are paying for, the stronger the trust, and hence the relationship, will be between the client and adviser.
Here is a quote from the FSA’s Adviser Charging fact sheet for IFA’s
“We are not prescribing the basis on which you charge for your service – for example fixed fee, hourly rate or percentage of funds invested – but we do expect you to set and operate yourown structures responsibly.”
What does it matter as long as the client knows what they’re paying and where it comes from. We charge actual hourly fees, fixed fees, project fees and % funds under advice. Surely if the client sees the benefit of your advice and wants to pay for it via one of the aforementioned methods, who cares if it’s called a fee or adviser charging – the client certainly doesn’t. There are too many IFA’s ‘lording’ it over others because of this desire to say that it is only a fee if the client writes a cheque. Complete ‘hogwash’. For me if there is a product to implement then surely you’re a better adviser to recommend payment out of the product so VAT isn’t added to their costs on that element of the advice?
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I first discovered the idea of fund-based fees in 1994, and it was a revelation at the time. Now I have my doubts. There is always going to be a mis-match between fee received and work done [i.e. the fund based fee will be either too little or - more often - too much]. And how do you charge for the bits on which you advised but may not be part of the fee-paying portfolio e.g. cash ISAs, Premium Bonds?
I’m more in favour of a fixed charge pa, and time costed fees for the initial work. It can still be paid from the client’s portfolio. But is it all right to use a SIPP portfolio for instance to pay for all your work – e.g. for a retired client where work includes estate planning,grandchildrens savings, as well as drawdown?
Thank you to everyone for your responses it just goes to show what a diverse bunch financial advisers are. Your responses sort of confirm what we thought was the case that what really matters is value for money.
@David I agree (and just about every IFA I know would agree as well) transparency is key. Knowing what you are paying and knowing what you get means you can work out value for money, or not
@Nick also agree it is about the individual IFA/firm setting and operating their own structure responsibly
@Phil I think they “lord it over others” because commission has become synonomous with opaqueness (unfair really but there you go) Watch out though for the VAT thing. It is not as clear cut at the present time to suggest that VAT does not apply to commission because the HMRC could view it that way if intermediation was not the dominant service. Good news though is that advice may well be VAT exemppt under possible new rules
@Francis I noted your comments in the Steve Billingham newsletter this morning. As previous posters suggested perhaps charges can be expressed differently for different services and that certainly is what we do.
Project charge in monetary terms for advice. Implementation charge using adviser charging expressed as a pecentage 0.5% to 2% in our case, and Review fees at 0.5% using adviser charging or direct payment by standing order, so we pretty much use all methods apart from an hourly rate and we even have one of those for those who ask specifically for it!!
Once again great comments and thank you for them