Some advisers will recall that more than 10 years ago I ran seminars around the country on fee-based financial planning, based on the experiences of setting up my own practice with the conviction that there had to be a better way of doing things than a commission-based approach.
Better in the sense of being paid for advice, not transactions. Better in the sense of being able to value all parts of the advice process, not simply a product recommendation.
My solicitor is paid for her professional advice, whether it is to take action or if there are no grounds to pursue a case.
My accountant is paid for his professional advice, whether an alternative strategy would result in a tax reduction, or there is no mechanism for reducing the liability.
My doctor is paid for his professional advice whether there is a diagnosis requiring treatment, or if I have a clean bill of health.
In all these cases it is the advice that is valuable. Advice to do nothing, to maintain the status quo, that there is no better option than the current strategy, is just as valuable as the advice to take action or to do things differently.
So, if you agree with this, then logically you should create a charging structure that ensures you are paid, regardless of the advice you might give.
The client may ask: but if you tell me to keep things as they are, what am I paying for?
I reply: you are paying for information that your plans are on track and knowledge that past decisions are still working for you.
I explain the parallels with other professions and set out the myriad regulatory, research, software, compliance and general business costs that are incurred regardless of the advice I may end up giving.
How do your clients pay for your advice if they do not implement, or they implement elsewhere, or your advice was to do nothing?
Using terminology such as ‘dealing bias’ to rehash old concerns about ‘commission bias’ was crass and inconsiderate. But there is a solution that is good for everyone: teach your clients why your advice is worth paying for and emphasise that you will be paid, whatever the calculation method, regardless of whether the advice is to invest, switch, or do nothing.
There is no bias in that.
Gill Cardy is managing director of IFA Centre