Fee based advice

Some of the problems that may arise if you obtain commission based advice are:

• Conflicts of interest between you and your financial adviser, as to earn a living your adviser is limited to recommending a solution that pays a commission or may potentially be recommending a product that pays the highest commission
• You may not get some valuable but time consuming advice because it does not generate a commission paying product – e.g. tax planning or estate planning advice
• Your commission may be “supporting” other clients whose work produces lower commission but takes more of the firms time and resources
• Over the whole term of a policy an up front and pre agreed fee could well work out much cheaper than an ongoing commission

What do the financial regulators say if these are such bad problems?

It seems they agree. The Financial Services Authority announced in June 2009 that for advisers to call themselves “independent financial advisers” after December 2012, they must agree an explicit charge with you which must not be determined by the product provider. Pretty much what we are saying here.

Why can’t I just go directly to the provider?

In many cases when the advice is very straightforward and the monthly premiums are small and it would be more expensive for you to pay the fee that would result, we would usually advise you to deal directly with your product providers. However many people make bad decisions on their finances and end up with poor unsuitable products because they “Go direct”.

However in cases where monthly premiums are over £20 and the policy is being set up for more than 10 years it is usually cheaper to pay an up front “one off” fee than go directly to the providers as commission will still be charged and retained by the product provider.

Investments or pensions

In the case of new investments or pension plans the “commission” deducted by the provider both initially and annually is the often the same as the fee if arranged through an adviser. You pay the same, but don’t get the pensions advice.

Some “discount” firms do offer a discount on the initial fee when setting up your investment portfolio – as do we, depending on the amount invested – but may not give you any advice. They generally keep all the ongoing annual commission without providing proactive investment management by giving you any ongoing advice as markets change and fund managers move jobs.

Insurance policies

These are often arranged under indemnity commission which pays an adviser up front with a small monthly ongoing commission as long as the policy stays in place. The larger the premium, the larger the commission – no real surprise there.

However, if you pay a fair pre agreed fee instead the monthly premiums can be reduced potentially saving significant amounts over the term of the policy. Of course the fee is agreed with you and not the insurance company thus eliminating any company bias on your recommendations.

What’s the best way to agree fees with my financial planner?

Some financial advisers or financial planners will charge you by the hour – at Bluebond we prefer a fixed pre agreed fee arrangement when working with our millionaire clients. If we under quote – that’s our problem. If we quote too much you can and probably will say no.  At least you know up front what it’s going to cost and can make your decision.

How are Bluebond paid?

We have posted another page on how this works in the About us section of this site. The page is entitled ” How are we paid”

Any questions about fees and commissions?