It’s interesting to see that some sections of the press are again questioning the way financial advisers are being paid by their clients.
When the Retail Distribution Review came into force at the beginning of last year it outlawed commission in the form of payments to advisers from product providers. The idea was that under the new, more transparent, regime, all payments to advisers would be agreed with their clients before the money was paid. It would still be possible for payments to be made by providers from a product, but only if that payment was agreed up front with the adviser.
Quite often these payments take the form of a percentage of the funds under management. So if your pension fund is worth £100,000 and you agree with your adviser that he or she will be paid 1% for ongoing management and servicing of that pension then £1000 can be taken out of that fund each year. If the fund grows in size to £150,000 then the fee will increase to £1500.
Is that commission, or is it a fee? The argument won’t be solved here in the next 150 words or so but the important difference with the old system is that in this case if the client is happy to pay this fee and the adviser is happy to carry out the work for the payment of this fee then where is the problem? It’s an open and transparent fee agreed between the adviser and his or her client. That’s what the regulator was looking for after all.
And here’s another thing. Why does no-one mind when Solicitors charge their clients a fee based on a percentage of the purchase price when doing conveyancing for a house purchase, and why is it okay for Estate Agents to charge their clients a fee based on a percentage of the house price they are buying or selling for them as well. Is that not just a form of commission as well? And if it is not when it applies to Solicitors and Estate Agents then why is it when it relates to Financial Advisers?