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Investors could be paying thousands extra in adviser commission

New report reveals lower cost of fee-based advice

Piggy bank with stack of money

The Retail Distribution Review (RDR) will bring in higher professional standards and more transparency over fees

Investors could save thousands of pounds by choosing an independent financial adviser (IFA) who is fee-based rather than commission-based, according to new research by IFA review website Voucherfor.co.uk.

The report argues that a client investing £100,000 over six years, and who seeks only basic one-off advice, can receive £4,200 commission back (net of fees) with a fee-based adviser, which would otherwise have been pocketed by a commission-based adviser.

VouchedFor found 55 fee-based Independent Financial Advisers (IFA) that now publish their fees online. On average, they charge £143 per hour, or 1.8% of assets upfront followed by 0.7% a year for as long as the client retains their services. They refund all commissions, typically 3% upfront and 0.5% a year thereafter.

How to find a fee-based adviser

The VouchedFor report found that it can be difficult for consumers to find a fee-based adviser, with only 230 IFA firms (around 3% of the total) actively advertising a fee-based option on their website.

Adam Price, founder of VouchedFor.co.uk commented: ‘While some advisers have embraced RDR early on, making their charges more transparent and enhancing their proposition, many are either yet to make the transition, or are resigned to leaving the industry.

‘In this transitory environment, the arguments for selecting a fee-based adviser who has already embraced RDR are more compelling than ever.’

Changes to financial advice in 2013

From January 2013, a new system, known as the Retail Distribution Review, will change the way advisers are paid. 

Martyn Saville, Which? principal researcher, commented: ‘The big risk under the old system was that different providers offer different levels of commission to advisers, potentially leading to adviser bias when selecting the right product for you.

‘Commission isn’t being outlawed under the new rules – it’s just that you’ll have to agree any fees directly with your adviser, rather than the commission level being set by the product provider. Under the new system, you’ll either be able to pay a up-front fee to your adviser, or fees can be deducted from your regular premiums or from your investment.

‘If you have existing investments, it’s worth asking your adviser if they are receiving trail commission as existing investments aren’t covered by the new rules. Even if you’ve switched adviser, your old adviser could still be receiving trail commission, even though they’re no longer offering you ongoing advice in return.’

According to VouchedFor, 18% of IFAs are expected to leave the industry in 2013, while a further 66% plan to remain predominantly commission-based.

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