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Dennis Hall: Taking Paul Lewis to task on the ‘advice tax’

Paul Lewis’ claim that percentage based advice charges are a tax on wealth is inaccurate and provocative

I doubt there are any advisers with as much public clout as MoneyBox’s Paul Lewis, so it is fortunate for us he tells his listeners to seek advice. Not everyone sees eye to eye with Paul but whenever we meet I sense we agree on about 98.8 per cent of things.

It sounds like a virtual match, yet 98.8 happens to be the percentage of DNA humans share with chimpanzees. And while I am not comparing either of us to a chimp, you can see what big a difference 1.2 per cent makes.

Take Paul’s stance on annual percentage based adviser charges, which he says are simply a tax on clients’ wealth. This is an inaccurate and provocative thing to say, unless you want to shock or goad.

Taxes are compulsory, levied by the Government on income and gains, or as part of the cost of some goods, services and transactions. Adviser charges, on the other hand, are contractual and not compulsory. The FCA says so.

By ignoring the literal, Paul uses semantics and employs the word ‘tax’ to suggest a bad or distrustful thing. But as much as we might dislike paying taxes, the core services we rely on in society are paid for through tax, with the services for the less well-off paid for by the better-off. And although I would not wish to return to commission, removing the cross subsidy from rich to poor has contributed to a wider advice gap. (Then again, it is leading to the development of different ways to deliver advice, but that is another story altogether.)

Many things we purchase include a percentage based mark-up, so should advice be any different? Several of our costs are percentage based, with regulatory expenses, professional indemnity costs and business taxes often quoted in defence. What is more, my clients are typically most comfortable with percentage based charges, with several saying they find flat rate retainers and hourly fees uncomfortable.

Even so, there is a pressure to continuously question the basis of my fees and the value they offer, despite being constantly reminded how clients measure value in a variety of different ways. It is not always about the money.

So while I disagree with Paul that fees are a tax on my client’s wealth, admittedly they can be a drag: there is a limit to the amount of adviser ‘alpha’ that can be generated. With this in mind, occasionally I do explain to a client why the current arrangement is not providing value for money, in my opinion.

We then look at changing how we work to see if we can reduce our fees, moving to a lower percentage rather than an alternative method. This approach seems to work.

Most decent politicians argue that the Government needs a strong opposition to provide checks and balances and to hold it accountable. And while I am far more comfortable by the 98.8 per cent of things Paul and I agree on, it is the 1.2 per cent difference that challenges me to evolve and improve what I do. Vive la difference. Though he will not make a monkey out of me.

Dennis Hall is managing director of Yellowtail Financial Planning



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There are 12 comments at the moment, we would love to hear your opinion too.

  1. According to the sidebar Paul Lewis says he doesn’t believe in tax burdens anyway, so I can’t see why he then goes off and talks about adviser fees being a “tax” as if it’s a burden.

    Unless of course he just uses whatever words get the biggest reaction rather than the words that convey meaning most accurately.

    • Sascha, you beat me to it. Either tax is a burden or it’s not. You can’t have it both ways. Of course it’s a burden whether from HMRC or from an Adviser. But then Paul may expect us to work for free, just as he does.

      • You also forget the “tax” of the television licence which I have no choice to pay. Now, correct me if i’m wrong but Paul Lewis regularly appears on BBC TV. So he is either doing for the free publicity or he receives some of my “tax” as a fee. Funny thing is I don’t know how much that is. So am I getting value for money? Who knows!

  2. At a PFS Conference, Paul Lewis genuinely suggested IFAs give free advice to less well off clients as a “loss leader”. You have to laugh.
    Paul has his heart in the right place – but unlike buying beans for 2p in the supermarket, after the IFA does work at a loss (if IFA by some miracle survives operating in a non-commercial manner)then there is rarely any future sale or profit to be made from such clients.
    I’d take what he says with a pinch of slat. Turn off your radio and tv and go do something more interesting.

  3. I do like Paul Lewis and in the same breath deserves the flak he gets.

    Paul may well be at the top of his game or very near the top, but continues to sit on his two legged stool, too far forward too far back or side to side his balance is often off…. or sometimes he just falls on his arse like the rest of us !

  4. Great response Dennis. Paul Lewis is very much like Katie Hopkins – he feels he is paid to be as controversial as possible. He is a one trick pony. And when he runs out of ideas he will revert back to his favourite toy of adviser bashing. It’s the only way he can get attention. As such, his views are irresponsible and carry little weight. A man with as little integrity as he does cannot be trusted.

    To my fellow peers, let’s stop feeding the troll.

  5. Cost -v- value is the concern and bleating on incessantly about cost means we all end up with cheap rubbish.

  6. David Cathcart 13th June 2017 at 5:44 pm

    I assume Mr Lewis is a freelance journalist. It must be wonderful not to be held accountable for your actions and for what you say. Unlike regulated advisers who have to account for this liability in what they charge. So this alleged tax, is actually a risk premium, exactly the same as you pay a bank when they loan you money, exactly the same as insurers charge for insuring your car and presumably forms part of your fee when you charge your clients. However, we could play semantics just like you and demand you work for free for the BBC, after all it is a public service broadcaster and what you do could be construed as a public service that we all pay for from our licence fee, or to put it into your words a television tax.

  7. My recent study roughly confirmed that the cost of advice averages out at 3% for initial advice plus 0.5% ongoing advice which funnily enough is what was generally charged pre RDR! What is particularly interesting is that in reality some clients were paying 3 times the actual cost at 3% initial and others only half of what it actually cost. That is the level of cross subsidy I guess. But I also wonder whether the rise in ongoing charges to nearer 1% these days is to recover the sheer cost of bringing on new clients and something which the FAMR has in no way eased.

  8. Well said Dennis. Imagine a world where we didn’t pay a percentage on income tax, VAT, capital gains tax, corporation tax, PII/regulatory fees etc. Rather, regardless of earnings, everyone paid a fixed fee – this would be called a “regressive” tax policy as it hits the poor the hardest. The same could be argued with a fixed fee approach to charges – the “poorest” clients pay relatively more and it depletes funds quicker during dips (increasing sequencing risk). Etc etc.

    We should stop arguing about how fees are charged by commercial entities on their contracts with clients and simply focus on key issues – such as improving suitability and quality of advice, sharing more “good practices”, and dare I say it.. helping clients navigate their financial future after every Budget?

    • P.s. Paul Lewis is the troll of journalists. He’s only there to make headlines with controversial claims, thereby boosting engagement for his articles. He’s a bit like Katie Hopkins – a try-hard without any substance.

  9. Dennis, your argument is predicated upon being mindful and considered with your charging approach throughout the relationship with the client:

    ‘With this in mind, occasionally I do explain to a client why the current arrangement is not providing value for money, in my opinion.’

    Which is absolutely the right thing to do, unfortunately, all too often advisers don’t operate like this and they benefit disproportionately from receiving 10-20 years of 0.5-1% of the clients investment each year.

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