I’m sorry, but I really disagree with the current argument raging about fees charged as a percentage of assets under management.
For me, the issue is not HOW the fee is charged, but WHEN it is agreed. Here’s an example to illustrate my point:
An investor consults IFA A, whose charges are 3 per cent upfront and 0.75 per cent a year ongoing, both of which would only apply if the client proceeds with the advice and establishes a contract from which the fee can be paid.
An investor consults IFA B, whose charges are 1 per cent a year and this has to be agreed and signed up to before the research and report is prepared. The aim of the investor may well be that the fee is taken from the product, if that is possible, but the investor has agreed to that fee before any product is chosen.
For me, IFA B has the right approach with percentages fees, in that the fee is explicit, it is agreed at outset and documents signed prior to any report being issued.
What is wrong is only getting paid if the client takes a product which pays the fee. Surely whether the fee is percentage, an hourly rate or on another charging basis, it is just commission by another name?
It seems to me crucial that clients should be reassured that they are getting impartial advice and not worrying that the adviser would only get paid if they recommend a particular product. Furthermore, it would be essential that the adviser knows they are being paid for their professional advice, before they begin that work.
Forget the hows and whys, let’s concentrate instead on the whens.
Philippa Gee is managing director at Philippa Gee Wealth Management