IFA charging structure and RDR

PeterS4

Question aimed mainly at IFAs or those familiar with their issues.

As I understand it, post RDR IFAs will no longer be able to collect commission on certain new business.

I can understand why a move to up front hourly charging might not suit some IFA customers. What I am less clear on is why this is the inevitable consequence of RDR. Can't IFAs agree a percentage charge on invested funds directly with those of their customers for whom up front charges are unsuitable, and thus recreate exactly the same arrangement as trail commission? If so, why all the fuss?

Aegis

Essentially it's about clarity of charging. Anecdotally, some clients did not know what they were paying for their financial advice, so the FSA decided to make it explicit.

Personally I think this aspect of RDR is generally a good idea, but there are a few issues that have been identified which will cause complications (not worth going into here, it's largely only going to affect some clients with complex financial planning needs).

And yes, there's no reason whatsoever that IFAs have to use an hourly fee charging system.

dunstonh

As I understand it, post RDR IFAs will no longer be able to collect commission on certain new business.

On investment class business that is advised.

I can understand why a move to up front hourly charging might not suit some IFA customers. What I am less clear on is why this is the inevitable consequence of RDR. Can't IFAs agree a percentage charge on invested funds directly with those of their customers for whom up front charges are unsuitable, and thus recreate exactly the same arrangement as trail commission? If so, why all the fuss?

Most research so far has found consumers don't like the hourly rate option much. Most popular is percentage (with cap or stepped reduction) or fixed fee. The methods on which an IFA charge are up to an IFA.

Most investment class products have been fee based for some years. Many were long before the RDR was even put in motion.

The idea is that the IFA is charge of the remuneration level and not the provider. So, any potential for perception of bias cannot exist. However, if the IFA wishes to charge x% they can. The x% could easily match the old commission rate with some amounts. However, the difference will be that there should be a cap or stepped amount to prevent the fee getting above certain amounts which the commission system does not have.

PeterS4

Thank you both, that is very clear.

So would you say that part of RDR is OK?

bigmatt1174

It will be explicit and a fee agreement will be signed so the client would be under no illusion of how much the advice is costing - it may be a fixed fee, a %age of the investment. Also the on-going service fee (what used to be trail) will now have to be justified and not just accepted by the advisor. They will have to show what they will do for their 0.25/0.5% and if the FSA stick to what they say there will be checks to see if the on-going service is being adhered to.

mania112

It needs to be clearly laid out what the charges will be for advice.

Other than that, the price paid will/can remain the same. If the FSA are concerned that clients are paying too much, this will not be fixed with RDR