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Utilico Insights - Jacqueline Broers assesses why Vietnam could be the darling of Asia for investors
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Commission vs. Fee-based financial advice...more opaque than you thought?

Wednesday, 8th July 2009 15:13 - by Resident IFA

In my Blog of June 14th, I opined thus: “I’ll finish by leading into another topic I feel strongly about and will cover in more depth shortly - ’New Model Adviser'. This is the FSA’s push (via the ’Retail Distribution Review’ (RDR)) to have all IFAs at a certain level of qualification by the start of 2013 (Agreed) and for all Advisers to have their service and advice paid for by way of fee, not commission (Hmmm).” Terms: IFA = Independent Financial Adviser, FSA = Financial Services Authority I read an article (link below) concerning the viewpoint that commission-based IFA’s are being rail-roaded into the mindset that they are ‘bad’ and fee-based IFA’s are towers of virtue beyond reproach. I freely admit that I rail against the view that fee-based IFAs must be 'good' and ethical. I understand the argument that IFA’s will not be regarded as belonging to a ‘Profession’ until they are highly qualified and are remunerated in a transparent fashion. After all, the Client’s welfare should be the first and only consideration for an Adviser. Part of this clearly being that the Client has an adequate understanding of how their Adviser is being paid...and the choice of commission or fees explained to them in an unbiased fashion. I believe that there will always be financial products that are best remunerated by commission, such as Mortgages and Life Insurance. I refer to this advice as ‘transactional’ i.e. it may be a one-off, rather than a Pension that should be reviewed regularly. Realistically, an IFA would likely receive a ‘procuration fee’ of 0.35% of the loan from a mortgage lender in the event of house purchase or re-mortgage. On a £100,000 mortgage, this equates to £350. It is not unrealistic to think that advice and administration on a mortgage application would take 4 hours or more. Using this example, the Client using a £100 per hour Adviser would pay £50 more for the privilege of fee transparency. I am sure there are better examples, but I hope you get the gist of my argument. You may ask “What does this mean for me?” In the long-run, if properly thought-out and implemented, the changes due to the financial advice industry by 2013 should protect you from unscrupulous Advisers and aid the comparison of services and costs. The danger I can see is that, perhaps only in the meantime, honest, ethical, and knowledgeable Advisers are pilloried for receiving commissions. I, for one, want to take some time before 2009 is out to assess my business and look at the best service and business model for both me and my Clients moving towards 2013. Above all, if you do not have an IFA to call your own but are looking for one, check their credentials via the FSA website, ask for their complaints and qualifications record, and make sure (as I hope they would anyway) that they take you through their ‘Client Agreement’ (aka Terms of Business) document at the outset. Ask plenty of questions, trusting your instincts (’People buy people’) and intelligence in terms of the quality of advice and ongoing service you expect and believe you will receive...if you are looking for a long-term relationship and financial guidance. I heartily recommend you cut & paste the following link into your web browser - 'http://blog.ftadviser.com/?p=1368'. I particularly like the Stakeholder Pension example, leading me to think ‘If I had a penny for each time I gave my time free to a Client!’ Until next time...

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