Life companies agree adviser charging principles

Errr right

So where is this much vaunted document.

Bit like announcing a new method of achieving greater happiness and then forgetting to tell us what it is!

Happy New Year

Ian Coley

Partner

Medical Investment Services

If they "do an RDR" on Protection, then as with investments and pensions, less people will get cover for themselves and as a result will fall back on the state for assistance, the very thing they have been trying to avoid. There is also the possibility that they might also get dreadful advice from the banks yet again.

Strange really as the charging process is supposed to be between the client and the adviser and this lot seems to ignore both.

Plus ca change as the saying goes.

Link to the document would be good!!!!

I agree, David, an "RDR" on protection would be a disaster. Sadly, it cannot be ruled out, as civil servants don't understand the market, ie, protection is generally sold, not bought!!

Superficially I agree with Phil Melvile. the principle of Advise and Consultanct charging is that the Adviser agrees it with the client. However where it is through plan deduction the Provider has to administer it so there needs to be some consistency.

Could there not be "cartel " issues here

Do you get the feeling that they will be telling us what we can and cannot do and then say it is all the fault of RDR.

Well, it's nice to know that a few providers are making some progress towards working out how Adviser Charging will work. As Ian says, it would be nice to know what they are planning - other than knowing that a network agrees with it!

Our research shows that IFAs have widely diverging views of what they expect providers to offer in facilitating adviser charge as well as different requirements so some sort of framework should be welcome - as a starting point.

David - "possibility" or "certainty" ?!!

As usual all product stuff and misses the real point of proper planning!

Seems as though the concept of agreeing charges with clients is morphing into advisers selecting from a provider's menu of charges.

Why are advisers allowing the providers to determine how and how much they will charge their clients.

I guess it was always going to end up this way making the whole RDR debate a quite useless exercise.

Providers will continue to control distribution and dictionaries will still be an essential tool as the public is as ever misled and conned about the cost of advice .

Still the FSA will be able to boast that the con is now being perpetuated by a more educated process which presumably makes it all OK.

Phil,

The product manufacturers can only facilitate payments. Advisers and their clients determine the level of charge.

If advisers agree charges with their clients that manufacturers don't support then they will simply have to get a separate cheque from the client (assuming cheques still exist!).

If manufacturers don't offer sufficient flexibility they may well just be selecting against themselves.

Billions wasted for what?

Even the original aim of RDR of forcing more people towards the banks looks as if it has failed because they have looked and seen no point.

Another 10,000 redundancies at RBS is probably the tip of the iceberg.

We all knew the insurers would try and dictate what advisers should charge. Well certainly from my firms point of view, if an insurer does not facilitate our charging model, then we use somebody that does, just like we do now. This is already part of our due diligence process.

Go on Mr Insurer, you hate having to accept that the power base is changing and that it will be the advisers eventually who will control the income stream of the insurers - I can't wait. but Mr Ingram is well aware of my opinions regarding these terrorists (sorry insurers) .

Sorry if this is a silly question - but whilst we're on the topic of AC and provider approaches.

Re: existing plans which currently pays no trail / ongoing product charges (eg investment bonds where original adviser took all 7% upfront, pensions where no trail set up originally).

Where I am now as the replacement adviser providing servicing with annual review etc, will that historic book of business post-RDR be able to have some annual product charges added to it if the client prefers that route than a straight fee for the AR?

This would be great news if so?

Hi David,

If it were that simple why on earth are we having the debate at all. Advisers should justbe mandated to ask for their money from the client, pound notes, cheques, whatever.

But as you are well aware we have this nonsense that people will not pay so we have to have a product involved to facilitate deductions.

History tells us that the reality is most likely to be that providers will facilitate a menu of deductions from their products which suit their own business needs and the adviser community will restrict its activities to those products which allow deductions.

The FSA cannot possibly dictate how the providers structure their business models in the way they can adviser incomes.

Clearly this will herald a version of what is currently called restricted advice which is precisely what the providers actually want at the end of this nonsense.

I am sorry, but I am one of the simpletons. So you set up a protection plan or a lump sum investment and recover the fee from the provider. The client then cancels the plan under the cancelation terms and the provider I assume takes the fee back.

Surely if your charge an advise fee like a ‘professional’ such as solicitor/ accountant the fee still needs to be paid regardless whether the ‘advise’ is taken by the client?

Will cancelation letter to the clients say, Dear Mr Client you may cancel your plan, but if you do so you will still owe you adviser £x for the advice that you have chosen to reject?

What happens when client are rejected because they have failed to disclose their true medical records.

I think these problems may take some time to resolve and understand.

Good luck everyone

Network, Sesame. Owned by life co, Friends Life.

This looks like a group of companies getting together to sort out the pricing structure of a restricted offering.

I am certain that Sesame will be moving into a restricted advice regime post-rdr.

I don't see how it can effectively monitor full independent advice. I also think that a lot of its existing IFAs will welcome this approach.

The adviser is the agent of the client.

The client pays the adviser.

Nothing whatsoever to do with the provider.

This is what RDR is all about.

Simples!

Ooh, here's a bright idea (yes I'm being sarcastic). Why don't us advisers charge the client directly for the work we carry out for them, having agreed the cost before carrying out the work, and not worry about what providers can or can't facilitate.

Other than for pension work where a fee effectively receives tax relief, or for administrative simplicity if you charge a fund based fee, why bother with taking the fee via a product provider at all? Contrary to what some people might think, clients are willing to pay this way, and with time the public will become aware of the post RDR world and accept how advisers will be paid.

I also agree with quizmaster, if the client cancel's afterwards, surely any fee cannot be clawed back, as the client has already made an agreement with the adviser on how much the adviser will be paid.

This is very simple but there seems to be a lot of misunderstanding. The client and adviser agree the fee. The Provider can FACILITATE this payment from the investment if the client so wishes but has NO control over the amount. If the client cools off the provider can EITHER return the whole investment to the client or return the net amount to the client and pay the fee to the adviser - it would depend on the Terms of Business between adviser and provider. If the whole amount is returned to the client then the client would still owe the adviser the fee (depending on the terms between client and adviser).

Yes, quizmaster, the current proposals allow for refunds to be made net of the adviser charge - if the manufacturer sets its offering up that way.

I think people are being a bit harsh towards the providers here. All that they seem to be doing is saying "if an IFA and client decide that they want to use a product to facilitate the payment of an agreed fee, we should have some sort of industry wide understanding of how this should be done". If a product isn't used to facilitate the fee, there is no problem as it has nothing to do with the provider. If the IFA and client want to use the product to facilitate the fee then it is surely going to be useful if they all use the same terminology and have a similar idea of how that should work.

With regard to the cancellation notice issue, this seems quite clear in the document. An IFA needs to make clear in their agreement with the client what will happen in the event of cancellation if they have used a product to facilitate the payment of an adviser charge. It would presumably need to be made clear in the agreement between the client and the adviser whether the fee would still be paid if the product is not set up or cancelled.

The document suggests either would be fine, however as the provider may become drawn into a dispute between the client and the adviser regarding a fee agreement that it had no part in setting up, I would imagine that clarity would be quite important.

It seems to me that for anything other than pensions, it would be easier to take a cheque off the client.

It seems to me that many who comment here who believe that clients will pay fees directly to advisors and not through products purchased are talking about those with money to pay such. Not everyone has the wherewithawal to part with monies in this manner.

Yes solicitors charge fees when you buy/sell a house but usually this is money that has been set aside for such or cash is being received from the sale of a house. Accountants charge fees for doing tax returns, this is because clients can't or won't do them themselves as they don't understand tax law etc.

Whilst we would all like to live in an ideal world, what about Mrs Miggins that asks for advice on her company pension scheme when she is given a booklet and doesn't have a clue what she should do. She thinks that contributing the standard rate of 4% is sufficient when she is ten years from retirement and hasn't considered the other options available.

What about the nurse in the NHS who gets a very comprehensive booklet on the change to the scheme rules but can't understand how to work her way through it and what she should do.

RDR is going to disenfranchise the masses who will then fall pray to the banks, building societies and the armies that sit behind their desks with targets and products to flog.

With the liability for advisors being carried into retirement who will want to deal with such people when the amount they earn is going to be insignificant and may well take the bread out of their mouths to pay our fees.

If fees/commission or whatever are paid to an advisor but disclosed to the client as they are now in pouds shillings and pence then what is wrong with the current system.

I am sure that many advisers, myself not included, would welcome some harmony and guidance from providers and a network on remuneration logistics post RDR. Not all have the confidence to charge the client an explicit fee. Clearly, most of the contributors to this debate do, but please let's live in the real world where many advisers are trepidant of the post RDR world. Do bear in mind that many advisers are network members and their host takes a percentage of their commission income. It makes commercial sense for Sesame to be looking at ways of securing their income by being paid by the product provider from the fees agreed by their member and the client. Networks will, of course, be silent on VAT. Income of the network member is income of the network and will be subject to VAT, if taxable, even if the taxable income of the member is below the registration threshold.

If, post RDR, a client invests £100,000 in a single premium bond, with customer agreed remuneration of 3% upfront, plus 0.75% trail, with 5% annual withdrawals will the position be the same as today?

I suspect the annual withdrawal will be based on £97,000, instead of £100,000. The trail will not be commission but CAR, so will need to be paid from the 5% allowance. The withdrawal will be fixed at outset, but the trail will vary, so if fund performance were stong the policyholder's withdrawal could go down. This could produce some interesting suitability reports!

Any thoughts on this out there?

PS Has anyone seen what Standard Life are sending retiring policyholders? A brochure crammed with deals on Philips electrical products. 10 years ago it was a quote for a with profit bond; how times have changed.

Bob,

Unless banks start charging fees for advice, they won't be providing "advice" to the people in the 2 examples you have given. There is no product that gives them an answer to those questions. Clients will have to pay for such advice in the way they have to pay accountants and solicitors. With time, public awareness will increase and clients will have to accept this.

Why debate what's wrong with the current system? The fact is, whether we like it or not, it won't exist by the end of this year.

Stewart, I couldn't agree more with your comments re Networks, what they are doing seems sensible to me.

The scenario you raise re the single premium bond is an interesting one, and we'll know the answer with time. It's seems to me that it would be easier for all concerned (client, adviser, provider) for fees to be paid by the client directly to the adviser rather than via the tax wrapper, or the product is platform/Wrap based and the platform/Wrap offers a cash facility that is separate to the tax wrapper and fees are deducted from that. (The latter is bad news for "traditional" products and providers though). Either way the CAR is the same, and the cost to the client is the same, which brings me back to the point I made in a previous entry - the already client pays for advice (and always has done).

@Bob Donaldson,

Do Mrs. Miggins and the nurse have to buy a product to get advice on their particular problem then? And are we to assume that they both live in a world where everything is free or that they never need the services of a plumber or electrician. No I don't use so called professionals as an example to try and big up what we all do.

I cannot believe that so many in this industry - absolutely not a profession whatever that means - are happy to admit that they are incapable of justifying themselves to their clients.

Get some pride people and learn how to show people why they should buy your expertise.

Surely what the FSA are trying to do through RDR is professionallise the financial advice industry along the same lines as other professional advisers such as solicitors/accountants etc.

In other words the adviser is the agent of the client and should not therefore have to rely on any product sale for their living.

If the adviser is in any way remunerated by the provider, then that adviser is the agent of the provider whether the adviser is independent or tied.

It seems to me that the 'independent' tag really refers to whole of market in a sales capacity.

Many people in the past received good service from the 'Man from the Pru'.

Perhaps the FSA should categorise advisers as either Chartered Financial Planners or Financial Sales Advisers!

Keith presumably you are chartered.

Keith, sorry about this, if you are, but Chartered status confers no guarantee of quality or standard of advice or business acumin, it just means you have good exam technique.

And thats the thing, RDR is insistant that being more qualified means more professionalism - there is evidence to substantiate this view. look how many lawyers and accountants are struck off and jailed each year, far far more than the Financal Sales Advisers !!!

By the way if you think I am one of these advisers that deride exams, think again, I am happy to post my certificates for my honours degree in Applied Maths and my MBA. I just can't bring myself to pay £500 pa to the CII for a completly useless designation. So please, less of the I'm chartered and your not nonsense

I agree with many of the comment made by James and Keith.

Nobody fully understands the impact of RDR regardless of their best intentions. The real problems will only come to light after Jan 2013. Clients in my experience are very happy to pay fees providing they are fair. The product providers are trying to resolve problem on their own with their own pocket in mind.

Adviser charging should be addressed by the networks or at least in conjunction with the networks. At the end of the day, Tesco decides what you pay for a tin of beans not Heinz. Nor does the money go to Heinz who in turn pay Tesco. [well overriders aside]

As we approach 2013 and beyond advisers will I think start to reconsider their networks and their offerings to ensure that they able to operate an efficient business. I think that some networks and platforms will merge to make advice more cost effective.

That brings us back to will there still be independent financial advisers under the proposed rules?

As for Chartered Status, I am not fussed even though I am quite close to it. I would rather spend time improving my investment knowledge than ticking yet more boxes.

A friend of mine did three past RO something papers on the Monday morning and passed in the afternoon. The banks use the IFS, one multi guess, one essay and a three hour fact find that you get 2 weeks before the exam and hey presto your level 4.

Chartered Status a ‘Professional’ qualification?

RDR

The winner… The Tax Man…The Losers…..the lower paid.

Bob, the FSA don't like the current system! That's why they are changing it. In about 10 years time when the masses are uninsured and without any savings and responsibility for looking after the destitute population falls back on the government of the day, some bright spark somewhere will say why don't we pay commission to sales people to get the masses to make provision for themselves.

Some aspects of RDR are sound and work for those who can afford proper advice, but the bloke with 3 kids and no life insurance needs to be sold it, and quick! The UK is destined to become a nation of poor people, a third world country, through poorly executed plans!

The only reason that people will not receive advice post commission is because of the utter incompetence of so called financial advisers who have neither the wit or the capability to understand the need to be able to demonstrate to the public why they need a financial adviser in their lives.

All of the prattle about professionalism only highlights the absolute dependency by most advisers on a process of concealing costs as much as possible and of outsourcing income to third parties.

Even plumbers tell you what they will be doing and what they will charge you and they dont get the drainpipe manufacturers to pay them either !

Chartered - professional - incompetent seems more appropriate.

Wow, this topic has really got the juices flowing. I can fully understand concerns, even the fear that is brewing regarding the implications of RDR going forward. Whilst I have my quals for 2013, I am neither Chartered nor full fee based, so consider myself to be a normal IFA who works in a rural location, offering advice across the board. I have not found any problem in asking for a fee for advice. I've had enquiries regarding the NHS who wanted to know whether to move to the new offering, and charged them a fee. Clients who wanted annuity advice where the funds don't support the time/effort ect. - charged them a fee. Mortgage advice, charged them a fee as i also include direct to lender providers in my recommendations. You get the drift. The issue unfortunately is between our ears, and lack of confidence. I was fed up giving free advice and was surprised when clients agreed to pay a fee, obviously have built up confidence from then. Now it is normal practice, I look at what is required, work out roughly what i would need to do the work, and then decide how i want to be paid.

Bang on the money Gog. To quote Darwin "It is not the stongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change". If advisers don't think like Gog, they will become a Dodo.

Whilst I completely agree with Gog, who is spot on, I think this has veered from some earlier points. The original comments were around providers facilitating adviser charging. Whilst all advisers need to get their heads round a move to fee's and have a menu of services etc there will always be clients who are unable/unwilling to 'write a cheque' and would rather deduct the fee from an investment.

@ Philip - you may be right in some cases, but we have a nation of consumers and adviser who have been largely conditioned by years of commission based sales. For those who already work in the fee based world, fantastic and I'm sure you are right, but I would suggest that they are the few, rather than the masses.

I personally like fees and use them in most circumstances, however, in most cases and by informed choice my clients opt for fees to be paid by any commission available. I know this will change over time like the use of leaded petrol!

I can not find the link to the IVA site practitioners in the document, surely this will be required after a period of 12 - 18 months!!!