Who does your independent financial adviser actually work for?
Monday, January 17th, 2011Charles de Lastic, Managing Director of Bluebond Financial Planning, explains the benefits of paying a fixed fee for financial advice.
The way in which independent financial advisers are traditionally paid is slowly, but surely, dying out. That’s to say on a commission basis.
What’s wrong with commission?
Payment in this way has led to many of the major scandals, with pensions mis-selling being the best known. Basically, if one provider pays an independent financial adviser more than another for the same work, it is in the adviser’s interest to place the business with the highest commission payer. This may not be in the client’s best interest and isn’t truly ‘independent’.
Also, your adviser may not spend time giving you some valuable, but time consuming advice because it does not generate a commission paying product – e.g. tax planning or estate planning advice.
Finally, over the whole term of a policy, an up front and pre-agreed fee does in many cases work out much cheaper than an ongoing commission.
What’s the alternative payment method?
Companies like Bluebond Financial Planning charge a pre-agreed fixed fee for the work agreed between client and independent financial adviser and therefore avoids any conflict of interest. In the case of mortgages where the monthly ‘premium’ cannot be reduced, the commission is refunded to you. Sometimes this refund is larger than the fee you paid! This makes it very cost-effective for mortgages over £200,000.
What does the Financial Services Authority say about it?
In June 2009 the Financial Services Authority announced that in order for advisers to call themselves ‘independent financial advisers’ after December 2012, they must agree an explicit charge with clients which must not be determined by the product provider. They are therefore agreeing with us and our method of working.
What’s the best way to agree fees with my financial planner or adviser?
Some financial planners or independent financial advisers will charge you by the hour. We believe that method is ‘an open cheque book’ which puts many people off.
Therefore, we would recommend a fixed pre-agreed fee arrangement on a project by project basis and would suggest that you find an adviser who will work in the same, or similar, way. That way, if you are under-quoted – it’s not your loss, but theirs. If you are quoted too much, you can and probably will, say no. At least you will know up-front what it’s going to cost and you can make your decision.
You can visit the Bluebond Financial Planning website to contact us or for more information on working with an independent financial adviser on a fixed fee basis. We’d be happy to hear from you.
