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Advisers gauge client appetite for fixed fees

Firm say they are moving away from charging on a percentage of client assets basis.

Advisers are gauging appetite among clients for charging for advice on a fixed fee basis, and are predicting a wider shift away from charging based on a percentage of client assets. 

FCA chief executive Martin Wheatley suggested in July that dealing bias can still exist where firms get paid only when products are sold, such as charging based on a percentage of assets invested.

The regulator has raised concerns about  “contingent charging”, where advisers only get paid when clients buy the recommended product, as part of its thematic review on RDR implementation.

Advisers feel it is only a matter of time before firms come around to the regulator’s way of thinking.

Plan Money director Peter Chadborn says: “To be paid exclusively on a proportion of the assets is a bit of a nonsense really.

“The work involved in a £200,000 investment may not be twice the volume of work involved in a £100,000 investment. It could be the other way around but charging on a proportion of assets means that is not reflected.”

He believes the regulator is likely to push for advisers to move away form charging on a proportion of assets in future. He says: “The regulator is already making noises to this effect and following the theme of transparency and fairness it is a logical next step.”

Jacksons Wealth Management managing director Pete Matthew questions whether the regulator has the power to enforce fixed fees.

But he adds the firm is nonetheless experimenting with fixed costs, inspired by a similar move by Informed Choice earlier this year.

Matthew says: “We have three steps, all charged separately: advice, which is fixed charge, and then implementation and ongoing advice which are percentage charging. We are trialling a fixed fee for implementation.

“It seems to make more sense to people. I could definitely see a genuine move to fixed fees.”

Chadborn says Plan Money has also begun to move some clients to fixed fees but says it is proving somewhat difficult.

He says: “We have not yet moved away from charging based on a proportion of assets because of the complexity involved in pricing up the work.

“Even the variations between one investment type can be quite different in terms of the work involved. For example assessing a client’s Sipp is quite different to reviewing a stakeholder arrangement.”

Derbyshire Booth managing director Greg Heath says: “We have a mixed bag since RDR came about because some clients prefer to pay based on a proportion of assets whereas some have asked us for a charging structure based on fixed rates.

“It is impossible to know how much work will be involved until you get details of the client’s situation. There were some cases in the early days after RDR where we under-charged for work because we priced something before knowing how much work would be involved.”

Bloomsbury Wealth Management partner Jason Butler says percentage-based charging means wealthy clients are not getting a fair deal. He says: “There is a conflict of interest in the relentless pursuit of accruing assets. I am uncomfortable about a client paying £65,000 and getting the same quality of service as someone paying £5,000.”

Matthew believes an unfortunate consequence of a move toward fixed charges is a further limiting of access to advice.

He says: “To take any client on at all we have to make £750 from them.

“For larger clients we will probably be cheaper but for smaller clients it will be more expensive.

“It pains me when you cannot profitably deal with a client. As much as I yearn for a more even playing field for clients, the burden of regulation means it is impossible.”


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. Costs as a percentage of assets involve an element of subsidy by the higher-net worth individuals to their less wealthy peers. I can see why FCA wants fixed fees – because that’s fair in the sense that everyone pays for what they get. But then there’s no point in complaining that those with smaller amounts are excluded from financial advice by prohibitive costs.
    You can’t have it all ways Mr Wheatley

    Director – Park Financial Ltd

  2. The FCA doesn’t “want fixed fixed fees”. Doesn’t anyone remember their concerns about “potential for commission bias”? So there is nothing new under the sun and it shouldn’t surprise anyone that they are concerned about bias when your only way of charging is dependent on the successful implementation of a portfolio of investments.
    The obvious (to me) way to resolve this is to work on a percentage basis if that’s what you want to do, but have an hourly rate / project fee / fixed fee / minimum fee option up your sleeve so that if your advice is to do nothing, or invest in things that don’t facilitate adviser charging, or if the client walks away without implementing your advice you still get paid … and frankly, I’ve been saying for years that if you are selling professional advice then you deserve to be paid for that regardless of the advice, and regardless of whether the clients decide to implement it or not.

  3. I’ve always thought that should you manage to gather all your clients in one place and explain your charging structure then a fixed fee is the only way all clients are going to feel that it is fair. The problem is that the “low net worth” clients are going to feel that they can’t afford it. Using an example quoted in the article above £750 for advice when investing say £11,520 into an ISA isn’t cost effective for the client. Should execution only be their only option in the future? I don’t have the answer i’m just highlighting what all advisers know now and what the FCA will pay thousands of pounds to know in a couple of years as the result of a review into the advice gap.

    That is without mentioning the fact that i think it is going to be pretty hard to get the average man in the street to agree to paying for advice only when that advice could result in him doing nothing and still paying for it. The FCA should be looking for ways to make advice cheaper and more accessible to the masses, so far all they are doing is restricting who can access advice. An own goal in my humble opinion.

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