At the end of this year new rules will be introduced that mean advisers can no longer receive commission payments from product providers when they recommend an investment or pension plan product to you.
Instead the adviser will have to agree with you, the client, in advance exactly what their ‘adviser charge’ will be.
We believe that this transparency of charge will be good news in the long term but may cause some interesting discussions in the short term.
This is because to some extent the financial services sector has spent many years leading the consumer to the conclusion that “advice was free”.
Advice was never free
Usually the cost of advice only crystallised when a consumer purchased a financial product and commission was payable to the adviser.
The commission of course was always paid by the consumer from product charges but they might be forgiven for believing this was at no cost to them particularly if they were led to believe that by a less than scrupulous adviser who did not properly disclose commission.
Where does the money go?
Now that the cost of advice is to be transparent we thought you might like to know what happens to the money that you pay your adviser for the advice and services that they deliver to you. Sadly, it is not all profit!!
Let’s see where a payment to your adviser of £100 actually goes;
Regulatory and Accountancy costs account for £12, for such things as FSA fees, payment of levies to the Financial Services Compensation Scheme, Professional Indemnity insurance and for production of our accounts and regulatory returns.
A further £5 goes towards rent, rates and utilities in respect of the office from which we work.
£4 goes towards the transport costs associated with your adviser coming to see you.
£50 of the £100 is the cost of staff, salaries, National Insurance and employee benefits such as pension contributions.
As you can imagine in order to be efficient and effective we have to use suitable technology and licence fees for that technology account for a further £5.
£8 goes to the Government in the form of Corporation Tax because we are a private limited company. And finally our profit in the form of dividends paid to the shareholders is £16.
Now actually we could argue that none of this is of more than academic interest to you after all you still pay the full £100 but we hope that you are at least able to see that the payment to your adviser of fees or charges does not in itself entirely constitute profit. How I wish that it did!
Photo credit: Flickr/pnillarydmark
