Independent financial advisers, especially those of the chartered variety, appear totally fixated on how they receive payment from their clients. Place two IFAs in room and it will not take long before the question of “how do you charge fees?” will be broached.
It is an unhealthy obsession for some, who are seemingly on a quest to find a fee charging nirvana. They attempt to climb the IFA equivalent of Maslow’s hierarchy of needs, with the ultimate goal of self-actualisation and being totally content with their business model.
On social media, the question of finding fee paradise is often vented by those passionate about this monotonous subject. How an IFA is paid apparently correlates directly with their level of integrity. Firms that only accept cheque payments, charge by the hour or never take payment via a product or asset are held out as the profession’s pontiffs. Conversely, those firms and advisers who dare to take commission in any form are sinners, suggesting commission could work for the mass market results in a Twitter stoning. Working for St James’s Place or suggesting that, as the market leader, we might follow their model, results in a Tweet crucifixion.
I may have overstated the religious metaphor, but it does feel almost like a cult. The cashflow planning disciples have, as they say, really upped their game recently, based on a throwaway line from the outgoing FCA CEO. Tracy McDermott, appearing on Radio 4’s Money Box programme, dropped that the regulator may look at bringing back commission to help with the advice gap. This pint-sized soundbite was akin to Lance Armstrong telling Oprah Winfrey after a decade of denial he had used banned performance-enhancing drugs.
For the fee-only stalwarts, the regulator suggesting commission may be acceptable resulted in IFAs and journalists actually bonding in a united voice of derision.
Possibly the constant chatter on fees is a question of low self-worth. The regulator and the media portray the advice industry as a commission-focused salesforce, looking for its next victim. Arguably, the brand perception for the majority of potential customers towards advisers is so negative that many IFAs have absorbed - almost by osmosis - high levels of disapproval, with the result of lower self esteem.
There must be a psychological reason for IFAs to shift from what they ought to be focused on – meeting clients’ needs profitably and providing for themselves and their families – to this obsession about charging.
“Clients come first”, they cry. Really? Before your own business profits? Before creating the money to achieve your own and families goals?
With this limited perception and, I assume, to raise their own self worth, they retype their terms of business to include some or all of the following: charging on hourly rates, only accepting cheques or indeed only providing cash-flow modelling, and deleting commission offset options as they consider products to be wicked.
Of course it doesn’t work; they can’t wash the sins of the industry off.
We might think that those IFAs who have found a charging structure that helps with their own self-worth and meets the needs of their clients would provide have found the perfect balance.
Those advisers who embrace a business model based on payment by fees, avoiding payments from any assets and only adding value through cashflow forecasts might believe that makes them happy. Unfortunately, it does not; they will only be happy when everyone else believes it.
As an industry we must question why we are not worth generous fees in return for providing product-based advice? A decent barrister will charge £5,000 a day, that’s £1.3m a year for what we may perceive as doing nothing more than talking in a court. Comparable to an IFA taking £50,000 for arranging a life insurance policy or a providing a new investment portfolio? Is the client not paying for the IFA’s product knowledge and skill in selecting the right products? Has this knowledge no real value?
The answer is yes, it does, it exhibits immense value. But the problem stems from IFAs whose self esteem is so bruised that they’ve forgotten the knowledge they retain and its real market value, so they fail to communicate this to potential clients. Instead, they seek obscure charging structures that not only confuse clients but actually limit their options while providing services that most clients arguably won’t even need.
Charging well-heeled people fees to tell them they won’t run out of money (a fact they must be aware of) and suggesting this will lead to the adviser into self-actualisation and fulfilment is complete drivel.
