Panacea Adviser

Is ‘Mis-Billing’ the next scandal?

Recent forums discussing financial adviser remuneration, employment status and fees have highlighted one more unseen, unintended and possibly unfortunate consequence of the RDR, writes Derek Bradley, CEO, Panacea Adviser.

Mis-billing, or, as the FCA boss, Martin Wheatley has labelled it, mis-dealing.

One of the key aspects of the RDR was to remove the bias that could be created by commission.

However, as Martin Wheatley has already pointed out, “In some cases, firms are charging a percentage of product investment, and clearly it takes away product bias in the sense that we are no longer seeing firms recommending particular products because of the payment that comes to them, but it does not take away ‘dealing bias’, because if you only get paid if people buy a product, then you are going to want them to buy a product rather than pay off debts or do something else.”

Financial services advisory firms need to generate revenue to survive, thrive and grow. To do this they now need to ‘sell’ their service proposition, not a product.

In previous times, adviser businesses were driven by sales. Those doing the ‘selling’ were multi-taskers – people who could prospect, identify a need, devise and articulate a solution, execute that solution and as a result they would see reward and their business, if enough solutions had been ‘sold’, would see survival turn to growth.

‘Sales’ is now seen as a dirty word but let us not forget that these people did create wealth – not just for their clients but for themselves, their employers and those provider firms too. The wealth went to create jobs, pay good salaries and the outcome was almost always happy clients with savings if the FOS figures on adviser complaints are to be a yardstick of success.

In the post RDR world, the prospector and the salesman are still needed and a vital addition to any successful business. But even more important is somebody to bill.

However, if commission bias has gone along with commission, will we now see mis-billing with fees charged, yet nothing tangible being done at all?

Mis-selling has often been identified with the benefit of hindsight, but mis-billing could be much more difficult to counter and possibly difficult to spot.

With advisers under increasing pressure to survive post-RDR, could this be the next scandal to hit the market?

We hope not, but there is already much division about the possible bias of fees based on funds under management versus time with time often looking more ‘professional’ and representing better and purer value for the client.

But the possibility to create work simply to raise a bill is a spectre that may loom large over firms looking to survive the harsh reality of the post RDR world. After all with average fees being around £150 per hour, a couple of hours of creative billing per client over a year for a firm with a segmented client base of around 250 can soon generate £75,000.

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