Changes came into effect on 31st December 2012 which meant that commission can no longer be taken from a product provider to remunerate an adviser for the advice they gave to their client. Instead financial advisers will be paid by “adviser charging”.
This rule applies to all financial advisers (independent and tied/restricted) and means that the product provider will no longer influence the level of remuneration received by the financial adviser.
All advice charges need to be disclosed to clients up front and in writing. The client will therefore have the opportunity to agree charges with their adviser before any work is carried out.
An adviser will often charge at 3 distinct stages in the advice process:
This is the fee for doing the necessary research and providing the initial written report outlining the adviser’s recommendation.
It could be a fixed price or based on an hourly rate.
Implementation of new investments
If the advice is for new investments or switching of existing investments there will often be a separate implementation fee for providing this service.
This may be charges as a % of the amount invested, or a fixed fee.
Review and ongoing service
Where advisers provide an ongoing (typically annual) review, a separate fee is charged for this service. This may be a % of the value of investments under management, or a fixed fee.
Can advice be free?
Some adviser won’t charge a fee for the initial advice and only charge if they implement a new product.
However don’t think that you are getting free advice.
If an adviser works on a speculative basis when they write the advice report they will need to be paid for the time taken in some way, shape or form. .
It is likely the implementation fee will be significantly higher in this instance than it would be if they had charged for the report.
You should also consider whether this is likely to skew the advice they provide. Are they more likely to recommend an investment product so that they can make an implementation charge, regardless of the suitability of this course of action?
Paying a fee for advice removes this element of bias.
My advice is that when seeking financial advice make sure you get details of all adviser charging in writing in the form of an engagement letter before proceeding. And make sure you understand exactly what service you are getting a each charging stage.