Consumer champion asked IFAs to give quotes for different services
Which? has found huge variations in Independent Financial Adviser (IFA) fees across the UK, with one quoting £2,450 more than the cheapest alternative to transfer money into a stakeholder pension.
Average fee quoted
The consumer champion asked 200 IFAs to give quotes for different services and found large regional variations in the fees. Although the average fee quoted to transfer a £10, 680 investment into a Stocks and Shares ISA was £356, one adviser in the south-east quoted £2,500. Two IFAs in the south-west and the east of England quoted £106. Meanwhile, an IFA in the north-west quoted nearly £2,000 more to arrange a protection policy for a 30 year old female than an adviser in Scotland quoted to do the same job. The average fee Which? were quoted by IFAs in this case was only £596.
No approved list of ‘typical’ charges for IFAs’ fees
Currently there is no approved list of ‘typical’ charges for IFAs’ fees, meaning people will find it difficult to know whether an IFA’s fees are reasonable. Which? wants IFAs to be forced to publish a rate guide on their website, so that people can make an informed decision about which IFA to choose and what is a reasonable amount to pay. Which? believes that consumers should go to an IFA rather than approaching their bank for advice, and has produced a list of key questions that people should ask in order to help them choose an IFA that offers a fair price and good service.
Which? chief executive, Peter Vicary-Smith says:
“Financial advisers should be much more transparent in their pricing, providing details of all their charges upfront. At present it’s very difficult for customers to know how much they’re going to be charged, and what is reasonable. ”IFAs should clearly display their fees online and if they don’t the regulator should step in to make this happen.” New regulations which will be introduced at the end of 2012, will make paying for financial advice fairer and clearer. They will ban advisers from receiving commission for new investment advice. This should mean that advisers are more likely to recommend the best course of action for the consumer rather than the one which pays the adviser the most commission.
The full article ‘Counting the Cost’ appears in the February 2012 issue of Which? Money magazine. For more information about Which? Money please visit www.which.co.uk/money
An IFA in Scotland quoted £50 to transfer £5,000 into a stakeholder pension (equivalent to 1% of our total), however an IFA in the south-east quoted £2,500 for the same service, 50% of the total.
Which? campaigned for the introduction of the Retail Distribution Review. The changes will mean that from the end of 2012:
- Advisers will have to be clear as to whether they offer ‘Independent’ advice covering the whole market or ‘Restricted’ advice covering a small number of products or providers
- Advisers will have to tell consumers how much their advice will cost and agree it with them. For new investments, they will no longer be allowed to receive commission set by product providers.
- The minimum level of qualification for financial advisers will increase and advisers will have to meet professional standards which will include a code of ethics.
Which? believes that consumers should go to an IFA, rather than approaching their bank for advice.
Which? has created eight questions that people should ask before choosing an IFA:
- How will the fees be charged?
- Does the IFA receive commission set by product providers? If so, what plans does the practice have to bring its charging approach in line with the Retail Distribution Review?
- At what stage of the process will you be charged?
- How will you have to pay the fees: by cheque or bank transfer?
- Are different fee options available to you for the service you require? For example, are you able to choose between paying by fixed fee or hourly fee? If different options are available, ask the IFA to explain the pros and cons of each one.
- What level of qualification does the IFA have?
- What service are you receiving for the fees/commission? Is it just the initial service or is any ongoing review involved?
The Retail Distribution Review which comes into effect on 1st January 2013 will revolutionise the way in which financial advice is provided in the UK. It is long overdue and is welcomed by all professional advisers that I know. Two of the key items that will be required are that advisers (whether independent or not) will have to provide clients with a schedule of charges and a full written description of the service that they will provide. This is hardly revolutionary, after all if I have building work done on my house I have expected a written quotation for decades. At Interface Financial Planning our current service and schedule of fees has been available to all on our website since February 2011 (why not take a look for yourself?).
In consequence your eight questions seem bizarrely anachronistic. Please do not do a disservice to the best changes that are happening in decades by focusing on price without considering the service offered. If you are the customer that wants the cheapest dentist, the cheapest garage to service your car, the cheapest builder to work on your house, then by all means look for the cheapest adviser. Personally I look for the best service proposition or at least I take a balanced view with price only being one of a number of factors.
Well done to Which? for being one organisation amongst many who campaigned for the RDR but please take the opportunity to advise the public of the implications of the RDR so that the customer can make the most of the opportunity. Please ignore the dinosaurs for the next few months because they only have 319 days before they become extinct.