The issue of what to charge for advice, and how these fees are calculated, is one consistently guaranteed to get the debate flowing among advisers. Throw in St James’s Place, and, as we saw with the Sunday Times article earlier this week, it is a case of sitting back and watching the sparks fly.
Whether it is the charges of SJP, 1825 or anyone else in the spotlight, what aggrieves people the most is the sense of unfairness, the idea that somehow there are businesses that are able to operate outside regulatory regimes such as the RDR or treating customers fairly, when for many firms these are the building blocks on which good advice is built.
It is right for advisers to point out that firms are free to choose their charging models as they see fit. But it is also right that the starting point should be a) does the client understand what they are being charged? and b) are they getting the service they are paying for?
There are decisions that every advice firm needs to grapple with when it comes to setting and reviewing their charging structure for both initial and ongoing fees. It is about working out the appropriate mix of percentage-based charging, flat fees, hourly charging and project fees, whether fees are invoiced directly or taken through the product. The price point has to reflect the value in the service being offered, the costs of staying in business, plus, of course, profit.
There is also the long-term strategy to factor in. One adviser has told me the firms looking to buy into advice much prefer/understand charging on a percentage basis, and advice models built around assets under advice.
As much as the RDR moved the dial in some ways with the introduction of explicit charging, some say there is still not much deviation from the old 3 plus a half model. Advisers look at what other people charge, and run their numbers accordingly.
The debate on fees and advice charges continues to be a passionate one, and long may that continue. But what advisers also need to have front of mind is how their own charging model stacks up, so they can continue to demonstrate they are worth their price tag – yes to the regulator, but, more importantly, to clients. Otherwise they may find themselves on the wrong side of unforgiving newspaper headlines.
Natalie Holt is editor of Money Marketing