Choose how your IFA is paid
Whether you take tied, multi-tied or independent advice, there will always be a cost for your adviser's service. Customers pay for advice in three main ways...
- by paying the adviser a fee, either at an hourly rate or through a fee for the whole job. This is known as 'fees only' advice. Fees vary, typically from £75 to £250 an hour. Often the first half hour is free at the initial meeting where you can get to know each other.
- by paying indirectly through commission, which is deducted by the product provider from the products you may take out. Often there is not only a commission charged for setting up a plan but there may also be annual commissions on top, known as trail commission.
- by paying a combination of fees and commission. The adviser will rebate back into the financial products or hand to you some or all of the commission or offset it against the fee.
Everyone can choose to pay their IFA by a fee rather than commission, if they want to. In the past the majority of consumers tended to opt for commission. In the future there may well be a shift towards more people paying fees and this will be explained in the information on your IFA’s charging arrangements. Most importantly only an IFA has to offer a choice of payment options i.e. paying by fee or commission or a combination of the two. Tied and multi-tied agents don’t have to offer you this choice, but some may.
The FSA has recently proposed changes to the current system under its Retail Distribution Review (RDR). We will therefore update these pages to reflect industry changes as and when they are introduced.
Menu of charges.
Until recently, each IFA was required supply two ‘key facts’ documents entitled ‘About our services’ and ‘About the cost of our services’ outlining the adviser’s payment methods and product and service areas they can advise you on. While The FSA has recently scrapped these two documents, this however does not mean that your IFA does not have to provide you with the relevant information – it just may not be in these universal ‘key facts’ documents.
Customers will still receive the details of the adviser’s charges at the moment they first seek the advice. Other documents will also be provided up front to spell out whether the advice is offered on products from a single provider, from a limited selection of providers or from the whole market.
This information makes it easier for the consumer to shop around for a competitive service and to know the cost of advice from the outset, and most importantly, assess the value of advice upfront.
This information should encourage people to shop around for the financial adviser they feel is offering them the most competitive deal.
All financial advisers must hand you this information up front for you to look at before going any further. Armed with these details you can ask your IFA to explain the charges he or she will make and choose to buy elsewhere if you think it may be better value. This system will also reveal where independent advice is better value than other types of advice.
Under its recent Retail Distribution Review (RDR), the FSA outlined proposals to change the way the financial advice market is structured. The RDR is currently in its consultation period and we will update this guide if there are any changes to the current situation.
