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E&Y: Advisers struggling with post-RDR charging transition


Ernst & Young says it will take advisers until the end of 2013 to transition their businesses away from the traditional “three plus a half” charging model.

Prior to the RDR, many advisers adopted a standard charging structure of 3 per cent up front plus 0.5 per cent for ongoing advice.

Ernst & Young EMEIA financial services executive director Malcolm Kerr says rather than moving to a model where their fee is linked to the cost of service, many advisers have simply transposed their pre-RDR commission into post-RDR product fees.

He says: “We thought, perhaps naively, that advisers would have developed fee-based advice propositions and discussed them with clients and been ready to go on 1 January 2013.

“In conversations with advisers and advisory firms a lot have said they still feel in a state of transition and are learning new approaches to dealing with clients. My perception is a lot of advisers are finding it quite difficult to explain to clients they have to pay a fee for the advice rather than for the transaction.

“I think the world will look very different at the end of this year, both in terms of the number of advisers and also the propositions. We think business models will be more orientated towards a fee for the service of advice, irrespective of whether the client goes ahead with a recommendation.”

Kerr says while most advisers say they intend to tailor their proposition to meet the needs of “up-market” clients, the “three plus a half” model many have adopted is skewed in favour of people with smaller funds to invest.

He says: “Most intermediaries are suggesting they intend to move up-market, yet fee structures as a percentage of investment means that the £50,000 investor can get a better value deal than the £200,000 investor.

“Bluntly, some fee structures are not yet aligned with the strategies – or indeed with the cost of delivering the service.”


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There are 6 comments at the moment, we would love to hear your opinion too.

  1. To E &Y. Just because a firm quotes 3 + 1/2 as a maximum, doesn’t mean they have to charge that much as. We have a minimum then a % which we reduce for larger cases. Why should we work the way E&Y seem to expect? It has F all to do with them OR the regulator provided it is agreed with the client. Anyway why should we listen to the people who audited the banks and told everyone they were fully clothed when we all thought the emperor was naked. Now we all know the banks HAD NO capital adequacy to speak of and IFA firms were required to have more!

  2. Biggus Dickus 2nd May 2013 at 8:14 pm

    3 + ½% is just a handy benchmark, usually discounted for larger investments, not least because advice on a specific investment proposal is usually augmented by advice on supplementary issues on which the client may well appreciate additional observations. There’s no need to make things any more complicated than that.

  3. John Blackmore 3rd May 2013 at 9:17 am

    The real problem is that too many Advisers feel they need to charge clients more than many clients are willing to pay. Supply and demand at work. Historically most clients hadn’t got any real idea of how much they were paying. Even now transparency hasn’t fully taken hold. when it does watch out.

    The FSA/FCA have forced up costs and to the degree that clients understand these costs numbers will fall. There is really only 5% of the old client market both in need of and willing to pay for complex financial advice. Simplified advice, when it arrives, will take care of the other 95%.

    The FSA were told this several years ago and either didn’t understand or didn’t believe. The one size fits all Q level 4 shows just how little they understood.

    Ultimately numbers will fall below 10,000

  4. Incompetent regulators 3rd May 2013 at 9:26 am

    What regulators forget is ifa have F-Pack parasites to pay for. So fees have to go up and not down!

  5. Anonymous | 3 May 2013 9:17 am


    I really would like to know what this term is which crept into financial services via Hector Sants term at the old FSA. It seems to be the holy grail within financial services.

    Is it a flowchart, tick box application form or even an information only website.

    Doesn’t lead to miss selling e.g. PPI endowments and pension transfers etc

    Instead of coming up with simplified advice – maybe we would just regulate ADVICE and treat all parts of the industry with the same rulebook.

    For years I have heard individual state that we get paid to implement products – that may have been true but now it’s actually giving advice and the FCA rulebook needs to be amended to take that into consideration. If you give financial advice you need to be authorised regulated and if you give advice via information only sites you need to be authorised.

    One rulebook for the whole industry and its rules enforced evenly across the industry – no special treatment

    If the industry enforced authorisation rules then advisers would have the confidence to expand to provide more individuals giving advice and bridge the advice gap and cost to the consumer would start to come down. Simple solution not simple advice.

  6. E&Y are correct. Adviserswill need to add a massive increase to their fees if they want to have enough money to pay the F pack fees.
    According to E&Y a further 11000 advisers will quit this year.
    Where else will the FCA pick up the vast amounts of money they require, including the £200 million they spend each year on outside agencies like E&Y.
    Keep going Kerr, you may just shoot yourself in the foot with any luck.

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