Fees v Commission - Hot Topics Q & A

Q. I am now in my late 40s and work as a Consultant in the NHS and private sector. In the last 20 odd years, I have taken (and not taken) advice from several financial advisers.
  
I have to say that none really struck me as truly working in my best interests, and when I did invest money with one of them, I never saw her again! On asking the company where she had gone I was informed that they had replaced her and I had been designated a new adviser.'

I have not had much luck with Banks either, and so approached an Independent adviser. He seemed to know what he was talking about, and since I had heard about the question of commission versus fees, I enquired as to the costs involved to invest a rather large lump sum. He offered both options he said, and he then wrote to me quoting for both. The commission option was 5% of the investment, and the fee option was almost exactly the same.

Now I know we do not live in a perfect world, but am I being a bit cynical here when I say that it is to much of a coincidence that the costs worked out the same? So what's the point?

A. We certainly understand your question.

A good place to start is to be clear about who you want to deal with, and the type of job that you want done. Reading your letter in full, Your experience seems to be limited to simply 'buying product'. You have approached advisers when you want to action an investment, and therefore have no overall game plan.
 
Then, since you have never developed a long term relationship with one particular adviser, it was pure pot luck if you would find one that you got on with. On the question of fees v commission, we have heard of both options being offered, and tend to hear that on many occasions the amounts don't differ by much.

(As a matter of interest, the latest information we have on fees and commission comes from the latest survey from an outfit called True Potential. This shows that 95% of advisers' income comes from either initial or renewal commission, whilst only 5% comes from fees).

The real question is, do you want to continue as you are, or take a look at what a fee based planner would do for you? They are out there as a distinct option to simply buying products.

For example, we would charge a fee for all your planning, including  analysing where you are in relation to your goals. One crucial point is that it is vital that your adviser/planner is detached from the outcome. The ONLY way this can be guaranteed is by paying them a fee for the work. After all, you may NOT require any policies or financial products. This is not an option; it is simply how the job is done.

After all, you as a Consultant will diagnose before you prescribe, and so should a good Financial Planner. What you may find is that this type of service is not offered by a standard adviser - independent or not - where it is mainly about retailing product.

If you then had investments to be transferred or new money to invest, we would act as your wealth manager. This would involve building you a risk assessed portfolio rather than the collection of products that most new clients have. The maximum initial charge here would be 3%, reducing to 1% for larger portfolios.

What is vital, we feel, is to separate the planning costs from any implementation costs. By doing so, you will know that the adviser/planner  that you are working with is totally (hopefully) detached from the outcome  and it will also give you peace of mind that non-commission paying solutions should be recommended.

We wish you well.