For many years, independent financial advisors in the UK have operated on a sales-driven commission model. This has meant that instead of being paid directly by those who came to them for impartial financial advice, they received a commission from the providers of the financial products as a marketing cost, with the advice function being a secondary consequence of the transaction.

While this offered short-term benefits for the cash-strapped consumer looking for financial advice, it brought a host of problems. The most obvious was that financial advisors were incentivised to recommend products that paid them attractive commission – not necessarily those that were right for their clients.

This problem reached its peak with the pensions mis-selling scandal, which saw thousands of people move out of occupational pensions schemes when they would have been better advised to stay put. Although it first came to light many years ago, pensions mis-selling was still a problem as recently as 2008, when unscrupulous financial advisors were found to be encouraging investors to switch their pensions at a total cost of £43m per year.

As things stand, advisors can take commission when they sell products such as pensions or unit trusts, as well as a ‘trail’ or recurring commission for every year the consumer holds the product. According to the FSA, these commissions amounted to an average of 5.6% of the sum invested. So while financial advice might be ‘free at the point of sale’, it certainly does have an impact on the performance of an investment – and, more importantly, it is clear that the advice given to the consumer can never be truly impartial.

However, there is a different way, as Neil Shillito, Director of leading financial advisors SG Wealth Management, explains. ‘Stephen Girling (my fellow director) and I wrote our business plan in 2000, and we felt that the best way to run a higher-end financial advice business was on the basis of what is now known as Customer Agreed Remuneration,’ he says. ‘Put simply, what advice and service can I expect to be given, over how long and at what cost? People in the industry looked at us as though we were mad. But we were ten years ahead of the thinking at that time. Slowly, the Regulator and the industry have accepted the changes.’

The firm has a completely transparent model, where clients are simply charged a percentage of their investment in return for first class advice and service, irrespective of and unrelated to investment products. It took time for the firm’s offering to catch on, but it soon proved popular. ‘It was very tough in the early years,’ recalls Shillito. ‘We didn’t have enough clients to generate referrals, so we worked hard to build up our presence in the local community and demonstrate that our business proposition added real value to the right kind of client. Despite the horrendous market downturn in 2001/2003 as a result of the bursting of the “tech bubble”, we became profitable in our fourth year, and have become increasingly profitable ever since. Even the recessionary period of 2007/2009 has failed to make a dent in the robustness of our financial stability.’

It seems the rest of the financial advice industry is now coming round to SGWM’s way of thinking: from 2012, UK financial advisors will be forced to charge the consumer directly for their services. Is SGWM concerned about the influx of new competitors? ‘No, not really,’ Neil replies. ‘We have a ten-year head start in terms of what the FSA’s RDR [Retail Distribution Review] will bring in 2012. Firms that are changing slowly or reluctantly are going to find it hard to adjust, while we’re already accustomed to delivering our financial advice this way. If anything, it will be good for us, because it will raise awareness and acceptance of the direct-charging model.’

Author Bio: Neil Shillito wrote the Article about Financial Advice and recommends you Google \’SG Wealth Management\’ for information about financial advice Norwich or visit http://en.wikipedia.org/wiki/Financial_adviser for information on financial advisers in general.

Category: Finances
Keywords: financial advice, norwich, norfolk, investments, wealth