Building societies have come under fire for using a ‘commission-style’ approach to charging for advice.
With banks pulling out of mass market advice or targeting wealthier clients, it is unsurprising that building societies are staking a claim on the high street.
Legal & General has made a significant push in the building society market, with access to more than 83 per cent of branches. Its restricted adviser model charges an initial 3.5 per cent – but only if the client takes out the product. Clients can also opt to pay 0.65 per cent a year for ongoing advice.
“It amazes me how these providers of advice can say their fee is only paid if the client takes out the recommended solution,” said Nick Evans, financial planner at One Life Wealth Planning. “Sometimes the right advice is to spend money or not to invest it, so if the adviser’s remuneration remains only where a product is sold, he is left with a conflict of interests that a move to fees was supposed to reduce or avoid.”
Chris Last, managing director of banks and building societies at L&G, said the model provides greater access to advice, adding that client research shows a preference for paying charges out of the product purchased. “The difference now is the clarity of what represents advice charges,” he said.
He added that few clients buy complex products without advice, as shown in Graph 1.
Leeds Building Society has a single-tied, restricted advice proposition with L&G and supports the model. “This model looks after the customer much more because some customers don’t even know they need advice,” said general manager of sales Paul Kaye.