Not all product providers are able to facilitate advice fees from the trust, so some advisers will have no choice but to ask the settlor of the trust or trustee for a cheque at review time. Where the adviser does have a choice, it is important they understand what the options are.
Being able to take fees from the product inside the trust can be much simpler from an administrative perspective for all parties. If fees are taken from the trustee’s bank account then the trust becomes subject to self-assessment, whereas fees taken from the investment within the trust may not be subject to self-assessment (depending on the underlying investment and the amount encashed). Setting up a trustee bank account for the trust is also difficult to achieve, and can take a long time.
Clients and trustees may prefer to pay the advice fee from the trust rather than pay additional fees from their own bank account. Where there are multiple personal trustees, having the payment come out of the trust may be easier to manage and administer, rather than trying to split the costs proportionately between them. Taking fees from the trust also means that on the death of the client, the adviser can continue to provide advice on the trust knowing they will continue to receive their fee directly from the provider.
Advisers and their clients will need to consider the best approach to take when it comes to paying fees to ensure they mitigate any adverse tax consequences. For example, where the settlor is not able to benefit from the trust, any advice fee taken from the trust could impact the IHT efficiency of the trust if they are advising the settlor. However, the adviser could take fees from the trust if they are advising the trustees without impacting the IHT efficiency of the trust.
Paul Schrijver, technical specialist at Skandia International, comments:
“In this new world of paying fees rather than commission, many advisers and their clients still prefer to facilitate the advice fee through the product inside the trust rather than by cheque from the trustees or the settlor. We have ensured we can meet this demand by making sure our trust range can facilitate fee payments in this way. Taking a fee from the product can help all parties better manage and administer the trust, and ensure continuity of trust management and fee payment even after the client has passed away.”
*The quarterly international adviser confidence barometer was conducted by Skandia International, part of Old Mutual Wealth, in Q1 2014, responses from 498 advisers from around the world.