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FAQ's - Financial Advice Fees

The answer to this is that you already do pay for financial advice, you just may not know that you do.

Financial advice, and the products recommended by advisers, is never free. Traditionally, the commission that advisers received for the investments they recommended was funded from the initial and annual charges. The changes commencing in January 2013 mean that in respect of any new advice or services the adviser cannot be paid for this by commission from the product provider but it must be an amount agreed separately with the client.

RDR also aims to make the charges clearer for the consumer, with the cost of the product being separated from the cost of advice. The benefit of the changes is that you can be sure you will receive advice relevant and suitable for you and not influenced by commission.

Any initial advice fees will be charged as before, with these payable by you from your own resources or in some cases facilitated by the product provider, though not by commission. You would need to agree to these fees in writing before the investment is made.

A typical unit trust investment may have the current charging structure:

1.50% per annum of which:

0.75% pa goes to the fund manager

0.25% pa goes to the administrator or platform for administrating the investment

0.50% is payable to the adviser (who may or may not offset this against their ongoing fees)

Rather than this charge being bundled together into one single charge of 1.50%, it will now be split into its component parts, depending on the service you require in the future. This will make matters more transparent than at present. Please note charges may vary from fund to fund and company to company, so this should only be regarded as an example.

No.

Our charges are already clearly explained in our Terms of Business and Fee Schedule for each type of service. We will have to make some changes to these, whereby we will need to remove the term commission and replace it with adviser charge or other appropriate description. We will have to amend our existing client agreements to reflect these changes.

Yes.

We have followed this principle since February 1995 and will continue to do so. We may continue to receive commission on some products that have been arranged prior to 31st December 2012. As at present we will continue to offset that commission against our fees as outlined in our agreement with you.

There will be less commission paid from products such as unit trusts, ISAs, investment bonds or personal pensions for example arranged after 31st December 2012. We will therefore now have less commission to offset against your fee. As a result, it may appear that your fees charged by us are increasing, but remember that the cost of the product charges is likely to be much lower than it is at present. There should not be any major difference in the total amount that you pay in charges and fees.

There may be occasions where your investments, particularly unit trusts, are changed to a lower charging share classes than at present. We will advise you if any such changes are to be made. If any changes are made after 1st January 2013 to funds or products arranged prior to 31st December that currently pay a commission, this commission will stop and a lower annual charge will be levied by the fund manager or provider.

It may be possible to have a product provider make a "Client Agreed Remuneration" payment to us from your portfolio to cover any initial or ongoing fees, rather than you having to pay it from your bank account. We will tell you where our fees can be paid in this way as it will depend on the product provider. We will need to ensure you understand what you are being charged and for what services before you sign such an agreement.

You may need to keep some cash held in your portfolio to allow for our fees to be collected. Typically this would normally be 2% to 3% of the total portfolio value and can be topped up by either dividend income or selling part of your holdings from time to time. We will tell you what can be done but it would be helpful if you can tell us how you wish us to collect our fees in future.