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.”