Financial advisers need to come clean over costs

FOR YEARS many financial advisers have been less than honest about how they earned their living. Instead of a client openly paying a fee, thousands of advisers relied on commissions from the companies they recommended.

The financial services regulatory body examined the situation and from last January banned commission on both investment and pension sales.

Instead a new era of fee-based advice was meant to arise where clients could decide if the costs were proportionate or if better guidance could be secured elsewhere at lower cost.

How demeaning but not surprising that the regulator who has taken over from the FSA reviewed practices last month and discovered three out of four advisers neglected to advise clients on costs.

The worst offenders were private banks and wealth managers whose clients could most easily understand such arrangements.

They are used to paying for legal advice from solicitors. Financial advice should be no different.

Advisers need to say the charge for an initial financial review and fees for establishing vehicles like a self-invested personal pension (SIPP). Some work on a percentage of the value invested which can amount to a far higher fee paid than a straightforward administrative charge.

Ask an adviser if there is a charge for a regular review, such as at six-monthly intervals, how many hours work on your account is envisaged, and what elements are subject to VAT. Enquire at what hourly rates the time for different staff members will be invoiced.

With the new arrangements for retirement – effectively not forcing an annuity with pension proceeds – now under active discussion, advisers will be busy.

They should not await for such a time to make their charging structures crystal clear. That time has passed.