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If you’re not paying a flat, fixed fee what are you paying for?

by | Feb 22, 2018 | General News

Traditionally IFAs work on a percentage fee.

But that can cause all manner of conflicts.

First up they earn more if you are worth more. But does your £1m really need any more looking after than someone’s £250,000?

You could be paying four times as much. Could it be you are subsidising your less well-off co-client?

Also, there might be the temptation to take on more risk and volatility than you are comfortable with. The bigger the returns the bigger the pot the more they earn.

And if the pot blows up, you’ll leave and be replaced by someone with a bigger pot.

And then there’s the issue when you want some money. Imagine you have £50,000 and £400,000 in investments.

You need £20,000 for something. Taking that £20,000 from the investments “costs” the adviser some future fees.

Taking it from your savings costs them nothing. But is that definitely the right thing to do?

Some other professions charge by the hour.

And what do you get for your money?

An open-ended commitment, that encourages waffle, pontification, navel gazing and all sorts of unhelpful behaviour.

Worst of all you really have next to no way of knowing what time was spent. You’re working completely on trust.

Compare both to a fixed flat fee.

Your financial planner has, presumably, quoted a fee they are happy to earn and that makes them some profit for the time and effort involved.

You know what you are in for and what you will get for your money. You also know you’re not subsidising anyone else.

You can also rest assured that the financial planner will get on with the work as efficiently as possible.

And you should be able to trust that their judgments are aligned with your best interests – they get paid the same regardless of the course of action recommended.

Consciously or subconsciously, the way you pay someone has a real effect on the way they behave, the advice you get and how it all works out for you.

Worth thinking about isn’t it?

future proofing your finances

advice@townclosefp.co.uk

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