Reading This Could Seriously Affect Your Wealth!

Monday 22nd April 2013

The Times printed an article on 29 December 2012 in relation to the new rules that the Financial Services Authority (FSA) have implemented after their radical shake up of the industry, which comes under the banner of the Retail Distribution Review (RDR). The article raises some valid questions and we thought it would be useful to spell out how AEON has adapted to these new rules.

Are You Independent Or Restricted? And What Does This Mean?

AEON is independent and employs whole of market advisers.

Prior to 1st January 2013 advisers could call themselves independent provided they offered advice from the whole of the market. The alternative to this is that an adviser could be tied to one provider (only advise on products from one company) or be multi-tied (offering advice from a limited range of providers).

However, under the new rules advisory firms have to decide whether they wish to be ‘restricted’ or ‘independent’. In this instance we will use the term ‘post-RDR independence’ (PRDRI) in order to make it easier to differentiate between the two.

To become ‘PRDRI’ all the advisers within a firm must be qualified and competent to advise on an extended range of investment products and research the whole of the market on each of these. If a firm does not wish to do this because, for example, they do not perceive the need to consider all investment arrangements or they may not wish to consider all product providers, then they must call themselves ‘restricted’. Excluding one product provider or one product type would convert your previous independent adviser to a restricted adviser under the new rules.

This does not mean that they are any less qualified to advise than a ‘PRDRI’ adviser, just that the scope of their advice will be reduced. However this is something that should definitely be checked with the adviser before your proceed to take their advice.

What Services Can You Provide Me With?

AEON is a firm of holistic financial advisers. This means we will look at your entire financial position and advise you on all financial matters. This includes your mortgage, insurance, investment and pension needs. In addition, we have additional permissions from the FSA to advise in connection with occupational pension schemes (final salary schemes) and home reversion arrangements, which many firms are not able to advise on.

What Fees Will You Charge?

For all pension and investment advice, advisers can no longer be paid by way of a commission taken from the product. Instead all such advice must be made via an ‘adviser charge’. This can still be paid out of the product or alternatively by way of a fee charged directly to the client. Most importantly any fees charged must be discussed and agreed with the client before undertaking the work agreed.

Adviser charges are split into two categories. A charge for the initial advice and a further charge for on-going advice, frequently taken as a percentage deduction from your investments on an annual basis. Each advisory company has their own charging structure but they will need to be quantified into these two categories.

Charges for ‘on-going’ advice usually range from 0.5% to 1.0% but typically many advisers charge a rate of 0.75%. As a result of the new way in which these charges are deducted this can be disadvantageous to many new investment arrangements. This is because this charge is now treated as a withdrawal from an investment. So, for example, if you invest within an investment bond, you are permitted within HMRC rules to withdraw 5% of the original investment over a 20 year term with no tax implications at the time of withdrawal. Now, however if your adviser makes an on-going charge of 0.75% p.a. from a new contract you are only able to withdraw 4.25% p.a. because the adviser charge has utilised some of your allowance!  Other investments may be similarly affected.

AEON has designed an alternative fee package to ensure that you are not disadvantaged in this manner and also to reduce the overall charge that historically is made for on-going advice. Under our AEON Charter PLUS scheme we can offer a fixed price fee agreement to look after all of your investments. This facility can provide a substantial saving especially where large amounts are invested, as we would then charge a fixed annual fee (subject to annual reviews) rather than a percentage of the money you have invested. In order to see how much money you can save in comparison to your existing set up, please visit our trail commission calculator.

Details of our typical fees can be found within our Client Agreement Document but the most important thing to remember is that no fees will be charged for an initial assessment of your needs. At the end of that meeting with AEON we would provide a personalised fee agreement relating to the work you wish us to undertake on your behalf and we will only proceed if you are happy with that.

What Qualifications Do You Have?

All of our advisers are at least Level 4 qualified and most have additional qualifications as well. We have been a Chartered firm since October 2011 and expect another two of our advisers to reach individual Chartered status in the near future.

From 1st January 2013 the FSA stated that in order to advise, individuals would need to have reached at least a Level 4 qualification which can be obtained via a number of approved examination bodies.

Will I Have To Pay If I Do Not Proceed With Your Advice?

In most instances, no. AEON has a structured advisory process and our first meeting is at our expense and without obligation. At the end of that meeting we will explain the cost that you will incur if you wish to make use of our services. It is your decision as to whether to proceed or not and if you decide to do so we will complete a fee agreement specifying the cost and the work that we will undertake on your behalf.

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