FCA chief executive Martin Wheatley recently said that charging a percentage of product investment does not take away dealing bias because advisers only get paid if people buy a product.
Mr Wheatley might actually have a point.
Adviser charging by percentages of funds under management rather than time taken was always going to be sailing close to the wind.
Adviser intentions from Panacea research carried out with GfK indicated that some 72 per cent of advisers would levy their charges through the product and astonishingly a significant number would not use providers who did not allow this facility – product bias?
Our latest research has indicated that post-RDR most advisers are charging an initial fee of 3 per cent of funds invested and 1 per cent a year for ongoing advice across a wide array of segmented servicing models. It may or may not be great for the consumer, but in many cases the percentage of fee quoted for a lump-sum investment today is very similar to single premium pre-RDR basic Lautro commission. Around 3 per cent, I seem to recall.
However what would the picture look like if an adviser’s fee was calculated on an hourly rate? Would the rate for a smaller investment plan be less than for a larger pot? And is this an accurate and fair way to calculate fees?
This is not about professionalism by way of qualifications providing the ability to see payment by a rebrand of commission. It is about reflecting professionalism charging in the same way as other ‘professions’ (if profession creation was one of the intended RDR outcomes) and that is by charging purely on units of time.
The actual source of payment, either direct from the client or from the fund is not too relevant. But should it be based on time? And should it be based on a transaction? After all the logical conclusion is no transaction means no fee, as Mr Wheatley implies. What then should the fee be based on, given that the time taken is almost the same?
And where is the consumer in all this? Research findings to be released soon would suggest that there is a significant reality gap between what advisers think consumers will pay and what consumers are actually prepared to pay.
Derek Bradley
Chief executive
Panacea Adviser
Newcastle
