Only 3% of IFAs advertise themselves as fee-based
Finding a fee-based IFA is much harder than finding one who receives commission, a new report from VouchedFor.co.uk reveals.
The website has found that only 3% or 230 of IFAs advertise themselves as fees-based on their websites, in an extensive online search.
Investors could be £4,200 better off using a fee-charging IFA rather than one that receives commission, according to VouchedFor.co.uk calculations. This is based on a client investing £100,000 over six years, with no further investment advice and who pays a typical 1.8% fee but receives a commission refund of 3% and 0.5% per year afterwards.
The fee-based adviser would return the incurred commission to the client, while the IFA charging commission will retain it.
Adam Price, founder of VouchedFor.co.uk, points out though that while fee-based advisers can return the commission, if an investor wants to receive ongoing advice this would reflect similar - if not higher - costs.
"It's not just a question of price. With an adviser charging fees you are more likely to benefit from ongoing advice rather than one-off recommendations that commission-based IFAs can often give."
The introduction of the retail distribution review (RDR) in 2013 will ban advisers from receiving commission for their recommended investments and force all IFAs to charge flat fees instead.
It’s expected that 18% of IFAs will leave the industry as a result of this law change.
Price hopes that its new findings will spark fresh debate on the RDR issue: "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."
VouchedFor.co.uk matches IFAs to users based on where they live and also displays personal recommendations or reviews from clients of the advisers.
A financial adviser who is not tied to any financial services company (such as a bank or insurance company) and is authorised by the Financial Services Authority (FSA). They can advise on financial products to suit your circumstances. All IFAs have to give consumers the choice of paying by fees or commission and have to explain which would best suit the customer in that particular instance. Also, if commission is paid either by the client or the financial service provider recommended by the IFA, the IFA must disclose what that commission is.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.