No recommendation will be suitable if it does not create the opportunity for a positive outcome for the customer. There will be numerous examples, and hence the adviser must use his/her professional judgement.
- A low value investment, say £25,000, where ongoing services are being recommended at a minimum ongoing adviser fee of £1,000 per annum, is unlikely to create a positive outcome unless investment returns are high (which may also require higher than acceptable investment risk).
- A higher value investment, say £250,000, attracts an initial adviser charge of 3% and the ongoing total expense ratio (TER) close to 3%, but the recommendation, albeit in line with the customer’s ATR, is for a low risk, cautious investment. Again, investment returns are likely to negate the cost of initial and ongoing charges, and hence a positive outcome is unlikely.
- A comparison undertaken when considering switching funds/investments shows that the target scheme has lower overall charges. However, other matters must be considered, such as the detrimental effect of any initial charge applied to the fund by the adviser, the remaining term of the investment, etc.
- The anticipated net return should exceed the net of tax return from an instant savings account.
Advisers must consider the relevant merit and client perception arising from any ongoing service proposition. Any ongoing adviser fee must be considered in light of the need for an overall ‘positive outcome’ for the client, primarily in cash terms.