Commission, fees and transparency
In the article, Martin explains how the new rules being introduced as a result of the FSA’s Retail Distribution Review will change the nature of commission:
“With the introduction of the new charging rules from the end of 2012, it really shouldn’t be down to the product providers to determine adviser remuneration. This needs to be a discussion between investor and adviser.”
This is different to the existing position where, although there is robust disclosure of commission payments, levels of adviser remuneration are usually established by product providers and ‘bundled’ within product charges paid by investors.
The article goes on to describe the fee charging structure at Informed Choice:
For example, Informed Choice, a fees-only adviser, uses a pre-agreed project fee for providing advice, a separate implementation fee if a client wants to act on that advice and an annual review fee.
Project fees range from £495 to £1,250 depending on the complexity and scope of the advice required. Implementation fees are between 1% and 2% and review fees 0.5% to 1%. It offsets any commission it receives from investment funds against these fees.
You can find a full description of our fee structure here.
There is also a good explanation in the article about where the typical 1.5% annual management charge (AMC) on an investment goes each year. From 1.5%, it is usually the case that 0.5% goes to the adviser, 0.75% to the fund manager and 0.25% to the provider of the investment platform.
As we move closer to the implementation of the new regulatory rules at the end of 2012, hopefully more independent financial advisers will move across to a transparent charging structure where cross-subsidy between clients is eliminated and it is clear where payments for advice are coming from.