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No magic formula for fees: IFA

There’s no ideal measure for how advisers should charge their clients, according to the Institute of Financial Advisers, which is looking to pre-empt the possibility of fees being regulated.

Wednesday, March 6th 2013, 8:31AM 4 Comments

by Niko Kloeten

The IFA has issued a statement outlining its views on adviser fees, which the institute’s president Nigel Tate said was in response to an online debate on an adviser blog that had “got out of hand”.

In its statement the institute said there had been many academics and practitioners attempting to answer the question of how advisers put a price on what they do for their clients.

“It has been debated nationally and internationally and while there are no surprises to those involved in the financial advice profession, the marketplace has not come up with the ideal measure,” the statement said.

“IFA maintains the view that valuing the services provided to any client is ultimately based upon the value the client feels appropriate for them. This includes the work done by the adviser and whatever else is agreed between the client and their adviser,” the IFA statement said.

“IFA does not mandate any pricing methodology. Rather, it supports the professional obligation on the adviser to clearly disclose their fees to the client and to adhere to what is jointly agreed between the client and their adviser.”

Tate said some of the online comments had been “bollocks” and the IFA felt it would be prudent to come out with a statement of what was appropriate in terms of financial planning fees.

“Financial planners actually charge fees for a range of services not a range of products,” he said. “Regulators will ultimately have views on fees that are charged and we want to pre-empt regulatory discussion about that by providing them with the over-arching reasoning of the institute.”

Tate said financial planners could learn from the legal profession, which took into account a number of different factors including benefits to the client, the level of urgency and the seniority of the person conducting the work.

“It costs me more when I use a partner than a junior solicitor.  When we deal with somebody I tell them I’ve got 25 years experience in the profession and somebody has to pay for that.”

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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Comments from our readers

On 6 March 2013 at 10:10 am Miles Hayward-Ryan said:
The market must decide. That evolves, so over time the best result for all is achieved. Intervention distorts the market so necessarily a worse result eventuates. The key elements are transparency and disclosure.
On 6 March 2013 at 11:29 am AFA Muggins said:
If regulation of fees comes in,the consumer will lose. In dealing with high end clients, and providing unbiased advice via charging for advice, (rather than product recommendations) and continuing to implement their plans over many years, it is the client that is deciding if they get value for money - not regulation. I spend an average of 17 hours actually in front of each client in the first year.
On 6 March 2013 at 11:44 am btw said:
Its not that complicated. As a general rule,.... CLIENT ADVISERS CANNOT RECEIVE PAYMENT FROM ANYONE OTHER THAN THE CLIENT. Anything else is a fundamental breach of their fiduciary obligations. Its been the same for 300 years. Once the industry starts meeting its fiduciary obligations voluntarily clients can start relying on it again and the regulator won't be needed to enforce the law.
PS. hey, where's that blog, looks like entertaining reading!
On 6 March 2013 at 4:11 pm Brent Sheather said:
Quite agree with BTW. Abolish commission – client pays the adviser and investors need to be warned that the longer the disclosure statement, the more likely it is that they are going to be ripped off.

A very good rule of thumb by the way. The blog is on the financial alert website and the story was called “Change, challenges and hard choices”. Some very humorous comments from one industry expert in particular (not me).

Regards Brent

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