There's unlikely ever to be a law banning percentage-based financial advice fees, but if the Financial Planning Industry were serious about becoming a profession and being fair, it would head that way. In my view, one of the big rackets in the financial advice industry, hiding in plain sight, is percentage fees.
It is up there with other advice distorting practices like commissions, fee-sharing arrangements and other sales incentives paid by large institutions and product providers.
While the Association of Financial Advisers, The Financial Planning Association and all "dealer groups" having already moved to "fee for service", the problem is that this almost always involves taking a percentage of each client's' money (referred to as "funds under advice", or FUA) directly instead of being paid out by the product manufacturers as sales commissions. Exactly the same result for the client, just called something different.
There are four problems with this system:
wetalkmoney do not charge a percentage of FUA because we don’t think it’s fair. A person with 10 million dollars is not costing us 10 times as much to look after as someone with one million. Fees should depend on your particular needs and the advice and service you require.
By charging each client a dollar amount like a doctor, accountant or lawyer, rather than a percentage, there is simply no question in whose best interests we are acting. And because we do not accept commissions and other sales incentives, we access ‘naked’ pricing. This is the true wholesale cost of a product, which is minus the sales commissions, marketing allowances, fee sharing arrangements and other sales incentives that inflate prices.
Is there likely ever to be a law banning percentage-based financial advice fees? Probably not.
But if the industry was serious about lifting standards and restoring consumer confidence, then that is the way it would be.
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