THE Queen’s banker, Coutts & Co, has come under fire for not automatically giving wealthy clients the chance to pay for investment advice by fee, even though this often works out cheaper than the alternative of commission and is less open to abuse.

Patrick Connolly of John Scott & Partners, an independent adviser, said: “Most financial mis-selling

in the past was caused by advisers chasing high commissions. The only way an investor can be sure he or she is getting impartial advice is by paying by fee.”

Until last year most advisers were paid by commission from product providers, but the Financial Services Authority (FSA), the City watchdog, overhauled the system after evidence that it encouraged some advisers to sell poor-value products to boost their earnings.

There is often a big difference in the commission that various product providers pay. For example, the typical unit trust pays 3% commission upfront, but Zurich Financial Services, the global insurance giant, has been criticised for pushing an Isa that pays 24% commission.

The FSA has also published figures that suggest fees often work out cheaper than commission, particularly for the big investments that wealthy clients of Coutts are likely to make.

The FSA said that if you invested £30,000 in a unit trust, a commission-based adviser might receive an initial payment of 3% or £900. Unit trusts also pay annual commission, typically 0.5% a year. However, a typical, fee-based adviser might charge £560 to set up the trust. Clients would pay Vat of £98 on top of the fee, so the total cost would be £658.

On an investment of £10,000, the fee payment may be higher. Fees can be more expensive on pensions.

Since last May financial advisers have had to offer customers the option of paying by fee if they want to use the tag “independent”.

Coutts is out of line with most other private banks, which offer both fee and commission options. It defended its action by saying all its commission payments are disclosed to clients before any investment is made, in line with FSA regulations.

It also stressed that it offers products from across the whole market and may consider a fee option in exceptional circumstances.

Nick Gill at Coutts said: “We believe that the change will make no material difference to the client, as we will still be able to offer the widest range of products available on the market.”

But former clients have raised questions about the quality of Coutts’ service.

Leslie Hatcher, 62, a former RAF pilot who now runs a wedding-dress shop with his wife, Natasha, 50, left Coutts because he was not offered the service he wanted.

Hatcher, from Swindon in Wiltshire, felt his investment adviser at the bank was more interested in selling him products than providing a good service.

Since last May advisers have had to spell out all costs in documents known as the “menu of charges”.

But consumers who buy insurance or protection, including critical-illness, payment-protection and life insurance, do not have to be told how much commission the insurer pays, Coutts is part of Royal Bank of Scotland, which also owns Drummond, Child & Co., RBS and NatWest Private Banking.

Their private-banking managers are multi-tied, meaning they sell investments from a restricted panel of firms. They will offer independent advice if customers request it.

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