Your article on remuneration for different services made a lot of sense to me, and certainly deserves further discussion.
As the IFA gets squeezed from all sides [extra work, less income & increased costs] he will be forced to begin charging the client, who will then rebel. Only then will it dawn upon the market that, notwithstanding paying a monthly service fee to the product provider, the independent financial adviser (IFA), and secondly the client, are incurring the costs of many areas of service.
I once tried to sue a provider for recovery of costs for servicing of one client—a conservative costing was R10 000 as I needlessly had to go to Port Shepstone on three occasions to remedy the provider’s maladministration. They reacted very strongly with the most embarrassing of arguments: why didn’t you just refer it to management? Past experience proved that reverting to management is mostly a futile exercise. They are very adept at shifting blame, not resolving issues.
If I had not come to the rescue of this client, amongst other issues, they would have been left without cover whilst hubby was in a War Zone. I lost that fight, but I won with another provider as I boxed more cleverly. I issued the client with an invoice for R10 000 for services rendered to remedy provider maladministration. I then threatened the provider that I would escalate to the Pension Fund Adjudicator (PFA) and posed the question: “Who covers the cost of my time to remedy your maladministration—the client or you”? They paid before it was sent to the PFA.
With the first problem mentioned above, I could, regrettably, not use the PFA threat.
I believe in cases like that, we should be able to appeal to the Regulators. I would have won if I had issued an invoice to the client, taking payment and then assisted them with an appeal to the Ombud to force the provider to refund the fee. The client didn’t have the money, and, in any event, had no comprehension of the costing of our industry. They labour under the impression that IFAs are getting vast commissions. Again, this was my fixing up legacy issues for which there was no remuneration.
In a discussion, a broker said he doesn’t go back and fix the previous brokers mistakes. It is too expensive in time and he is not liable for the consequences of another’s mistakes. This is a hard business approach, although I think the Regulator would still hold the latest broker accountable even though he did not sell the legacy products.
Perhaps a better approach is to say to a new client: “In reviewing your portfolio, I note there are legacy matters that need attention and if you want me to rectify those, it will be on a fee basis which may be very high.” The reality is that this takes place when you are on-boarding a new client, thus it will probably cost you the new client opportunity, so you often just shut up and bear the provider’s cost of servicing as part of your client acquisition cost.
This is a multifaceted matter that should be addressed as part of the Retail Distribution Review.