There has been a very slow but gradual movement towards charging fees for financial advice sector in recent years.
Changes due to be imposed by the FSA will mean that a lot more advisers will be forced in to charging fees come January 2013. They don’t have to, they could still charge commissions, but they will have to agree a price for their service that you both deem fair.
This is a massive change to what has gone before. At best the cost of advice used to be tucked away in the small print at the back of the advice documents. At worst it just wasn’t disclosed how much your adviser was making from you. Of course both of these scenarios still occur today.
But for me the big issue is not how well your adviser discloses what they are being paid. It’s the way they go about deciding how they will charge you.
Commissions just never make sense to me, consider this. If one client asks an adviser where they should invest £500 per month and another client asks where they should invest a £50,000 lump sum then in all likelihood the adviser could recommend, for arguments sake, 5 different funds to each of them.
They will therefore spend the same amount of time researching, recommending and implementing those five funds for each investor. So why, when a financial adviser charges a typical 3% initial commission do they charge the first client £15 per month for the advice and implementation and the second client £1,500 for exactly the same amount of work?
That’s why a flat fee, set at a reasonable level, is so much fairer than how the vast majority of financial advisers still work.