The consumer champion Which? has suggested that IFAs published details of their fees online, after a study found charges for the same project can vary by thousands of pounds.
Which? surveyed 200 IFAs to obtain quotes for different services, finding large regional variations in the proposed fees for the same work.
The average fee quoted to invest £10,680 into an investment ISA was £365.
One adviser in the South East quoted £2,500 for this work and others asked for £106.
We agree that pricing needs to become more transparent, particularly as we move closer to the end of the year when commission will be abolished and replaced with a system of adviser charging.
What we feel Which? missed from this study was the importance of value.
Price is only one part of the equation when engaging with a professional adviser. As well as understanding the cost of an activity before proceeding, it is essential that investors know what value they will receive.
Looking at the above examples, it is perhaps easy to argue that paying £2,500 for advice on a £10,680 ISA investment represents poor value for money. What we do not know is what the IFA in question proposed to deliver as part of the service.
Was the IFA offering a holistic financial plan in addition to advice on the ISA investment? Did the cost of advice include the implementation of any investments? What advantages would the investor gain by working with this particular IFA rather than another cheaper alternative?
Not all IFAs are born equal. The value of the advice they deliver will depend on a combination of their experience, qualifications, proposition and team-structure.
Here at Informed Choice, we approach this subject of pricing and value by delivering a number of things to new clients.
We offer all new clients an initial meeting at our expense and with no obligation. This is an opportunity to find out more about the investor and what they require. It is also a good way for the investor to ask lots of questions about our process, experience and qualifications.
Following this first meeting, we write to each new client with a detailed engagement letter.
As well as describing our advice, implementation and review fees for that particular client, it describes in detail the activities we will carry out.
Only by considering the price and content of a project together can you understand value.
Whilst we believe that publishing details of prices for different projects on our website could be misleading, as every investor has different circumstances and requirements, we do publish a range of typical fees in our Client Agreement Letter and description of how we charge for our services here.
Rather than calling for IFA fees to be published online, Which? should focus their attention on the current practice of many advisers to continue taking high levels of commission ahead of the Retail Distribution Review.
This is what has the greatest potential for consumer detriment; we are still hearing anecdotal tales of investors being charged 7% or 8% of investments via commission when they seek financial advice from banks.
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