Writing
a blog is a funny thing. You start in one direction and end up somewhere
completely different – or having a rant - which is never good!
This blog was started after reading Richard
Evans’ excellent piece in the Telegraph about hidden commissions being paid to
advisers through old-style products. The theme is an old bug-bear of mine –
advisers quietly enjoying regular trail commission without actually providing
any service to warrant such a payment. As Mr Evans pointed out, a client can
even “sack” an adviser, but unless they switch to a clean share class, they
will continue to pay the full charge and the adviser can continue to receive
the commission – and how many clients know about clean share classes?
I
have my own examples of this practice; a recent new client invested through a
local adviser 16 years ago. They invested one lump sum of about £25,000, and
that was it – no top-ups or withdrawals since. However, that lack of activity
meant the adviser had no interest in looking after them, and he has not been
heard from since – despite 16 years of annual commission which was supposed to
pay for an ongoing service.
I
know of a few advisers in my area who are currently working hard at getting in
touch with past clients with whom they have had no contact for years. Why?
Because they need to switch the commission to a fee before 2016. There seems to
be no sense of embarrassment that they have ignored the clients for years while
taking the commission. Rather, they seem to take the view that this is all the
FCA’s fault and is adding to their burden! There is a feeling of entitlement to
the ongoing commission.
This
entitlement theme was illustrated in a recent case I worked on; the ex-adviser,
a large national firm, were quite clear in their defence – the “Ongoing
Servicing Charge” was a “contractual payment” with no corresponding obligation
to provide an ongoing service. So why was it called an Ongoing Servicing
Charge?
It
all comes down to that old question of Trust. The public needs advice – now
more than ever. But they won’t turn to advisers until they can trust us to
behave properly. To build trust, we need to start by being transparent – and I
think that is the theme I want to focus on. There was a lot of talk about
disclosure of charges recently following the FCA review and a lot of comment in
defense of advisers who have tried to act according to the rules. But in my
view that misses the point. The disclosure rules should be a minimum requirement, not a target. We
should have enough confidence in our own service, and indeed in our own fees,
to be comfortable disclosing both up front, before the client has even met us.
Try
this as a test; visit ten IFA websites, including our own Reckitthouse.com,
(shameful plug, I know!) and try to work out what fees you would pay on a
£100,000 investment. I would suggest the vast majority will say something like,
“it depends on this” or “it could be between this and this” or “contact us
first”. There is a genuine reluctance to be open and honest about fees. And that
feeds the suspicion that we have something to hide. Not knowing what the fee
will be up front, before the client has even walked through the door, is a
barrier.
I
believe more should be made of this point. A prospective client shouldn’t have
to wait for a meeting before being told what the fees will be. Any adviser who
has been doing the job for many years, has seen many clients, and arranged a
great number of investments – large and small. Surely by now they can make a
good estimate as to what the cost is likely to be?
So
there it is, my call to arms. I challenge all advisers to make their fees clear
up front. Not an estimate between £500 and £2,500, but a specific figure, up
front, before the first meeting. Transparent and understandable.
Oh,
and if you’re receiving ongoing commission – do something for it.
