Many expats living in the UAE have been plagued by them at some point, usually soon after they land in the country — cold calls from financial planners promising to help invest your money or move your pension abroad.
You might be interested in their services, but should you buy from advisers who earn their living making commissions on the products they sell? Or should you instead select a fee-based financial planner who receives their compensation regardless of what they advise you to buy? And what difference does it make anyway? The answer to that question depends on whom you ask.
Jessica Cook, a private client adviser with AES International, who works on a fee basis, says the fees of commission-based advisers are almost always tied to specific products or services. “The model misses so much of what clients actually need,” she says. “A fee-based adviser can practise with a much greater degree of objectivity and independence. [They] cannot be swayed by any personal benefits that may come along with certain recommendations.”
The fee-based relationship also instils a solid long-term partnership between the adviser and the client, she says. “The advice is far more transparent and the client can be certain of the costs involved. No hidden charges lurk around the corner. This really has a knock-on effect in so far as the fee structure provides clients with the opportunity to get more service out of the money they spend on professional advice.
“Today’s clients expect much more clarity and transparency from their financial advisers. This, coupled with an ever-increasing compliance framework, is seeing the demand for fee-based advice increase dramatically.”
In the United States, President Barack Obama is aiming to introduce laws to reduce conflicts of interest for financial advisers who recommend retirement products. But commission-based financial planners argue there are benefits to receiving advice from someone whose compensation is tied to what they sell.
“Somebody who is fee-based has no incentive to recommend a solution, because they are going to get paid whatever happens,” says Edward Mainwaring-Burton, Senior Financial Planner at Acuma, who works mainly on commission.
“If you compare it to seeing a lawyer who would charge by the hour, you might sit there and have a lovely chat about what you were doing over the weekend and how your family is and that would cost you $200 (Dh734.5) . With a fee-based consultant you are paying for the time, whatever happens, so whether or not there is any advice or any action required there is always going to be a bill.
“However, with commission-based [financial advisers] you are only ever going to pay for work that the person does for you.”
His company, which is part of the deVere Group, the world’s largest independent international financial consultancy, receives its commissions directly from the companies it works with. All of its consultants receive a flat rate for all groups, products and services to ensure there is no conflict of interest, says Mainwaring-Burton.
“I know there are other companies that offer higher commissions or direct commissions,” he adds. “And some consultants have direct relationships with the institutions, but it really does come down to the individual company.”
He thinks the industry is moving towards a situation whereby commissions are paid based on the size of the assets under management. Tying the compensation directly to the size of the asset means it is in planners’ best interests for their clients’ investments to grow. How that develops remains to be seen. But one thing is for sure. One way or another you will pay for financial advice.
“When it comes to remuneration for professional advice, it is important to bear in mind that good quality advice does not come for free,” says Marcus Gent, Managing Director for the Middle East and rest of the world for Friends Provident International, which offers a range of different products. “It is a matter for you to decide how you would prefer to pay for the advice.”