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FCA: Initial charges for independent advice lower than restricted

FCA logo glass 2 620x430Initial fees for independent advice are cheaper than restricted advice, according to FCA data.

The regulator has released statistics from its review of advice suitability earlier this year.

Based on a sample of around 700 files, independent advisers charged an average of 2.81 per cent up front. Restricted advisers charged average initial fees of 3.57 per cent.

However, ongoing fees for independent advice were higher than for restricted advice.

Average independent advice ongoing fees were 0.72 per cent, while restricted advisers charged an average of 0.63 per cent.

Initial charges fall by pot size, according to the FCA.

Pots of less than £50,000 face average initial charges of 3.4 per cent, falling to 1.5 per cent for amounts between £150,000 and £199,999, according to a sample of 590 files.

The FCA also released a series of indicators by which it would judge whether or not last year’s Financial Advice Market Review had been a success. The project had the aim of improving access to advice and led to 28 recommendations for the industry.

The regulator’s “baseline measures” on how they will judge the market will include:

  • Demand side

– Numbers of consumers using advice and guidance and different channels used

– Use of workplace advice and guidance

– Reported reasons for not taking advice

– Consumers’ willingness to pay for advice

– Consumer levels of engagement

– Levels of satisfaction with advice and complaints data

  • Supply side

– Number of advice firms and advisers

– Number of independent/restricted firms

– Minimum investment/pension pot size advised on

– Adviser charges – Industry views on the clarity of the regulatory

– The extent to which firms are offering different types of services e.g. automated advice

The FCA has opted to push back its post-implementation review of the RDR scheduled for this year so that it can take into account the FAMR recommendations and incoming regulation such as Mifid II while reducing the reporting burden on the industry from separate reviews.

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Comments

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

  1. As the practical difference between independent and restricted is anywhere between wafer thin (indeed, some restricted advisers will offer more services than an independent) and a gaping chasm I don’t know what this tells us.

  2. I think for the vast majority of business looked at in this survey, will have been “vanilla products”. Your PPP’s ISA OEIC Bonds etc etc and to that end as grey area suggests the differences between indy and restricted may well be paper thin. What this does not show is the difference between the cost base of those surveyed. It is therefore totally useless to derive any meaningful information from. One example that comes to mind: A restricted adviser who is part of a 5-adviser practice with 3 office staff and all office associated costs is very likely to charge more than an IFA who operates from a home office with very low overheads. Regardless of this, I don’t understand why the FCA resources were wasted finding and publishing this information. What is it supposed to demonstrate and what purpose does it serve?

  3. Robert Milligan 30th June 2017 at 12:27 pm

    Why anyone needs to charge any more than 3% for advice is untenable, the problem is some endeavourer to recoup the lack of activity by over charging the little they do, and then there’s those who charge 3% for the advice and need to add on the Network Compliance and parking space charges to the client, o yes and the convention, because we can is untenable

    • Julian Stevens 30th June 2017 at 2:31 pm

      I stopped basing my initial charge/s on a percentage of the sum/s to be invested several years ago. Now, they’re just £ & p.

      And I don’t apply them as a transaction charge either. My charges for advice and implementation of my recommendations are quite separate.

      Ideally, I’d employ Informed Choice’s charging model ~ ALL their initial charges are for the advice, with none for implementation. I’m not quite there yet but it seems to me that it’s towards that that we should all be striving.

      I received a call yesterday from someone contemplating investment of £250K. What are your charges? he asked, the reason being that he’d spoken to somebody else (an SJP partner) and that person had bluntly stated 3%. Draw your own conclusions (I’m seeing the enquirer next week).

  4. This is mindless rubbish published by the FCA. It looks right so it must be correct. Any one firm may charge the whole range of initial advice %s – we do. From 0.3% to 6%! It infuriates the pants off me that the FCA use figures like this which are so meaningless. Clients pay a sum of money for advice. Unless the charge is broken down specifically for the investment – impossible to do – the results are useless. It is time the FCA were challenged on this – it borders on incompetence.
    Clients pay for advice in many areas and is not linked to investment size. God, they are arrogant and misleading!!

  5. As a more general comment, how much of the cost of initial advice is actually offset by the ongoing charge which I note is generally getting higher for a service that even the FCA does not prescribe! The figures are meaningless.

  6. Blimey O’Reilly. First the FCA is chastised for never publishing data and now it’s chastised for publishing data! This and the Data Bulletins are worth a read. Issue 9 especially – https://www.fca.org.uk/publication/data/data-bulletin-issue-9.pdf I know there are statistics etc but we have to start somewhere and the information provided is a good start. At least I can try to benchmark where we are as a firm even if it is against averages.

  7. Why are cost such an issue? Why the great interest? Is cost the real barrier to gain advice as I don’t think it is.

    Most advice is investment based, NISA, GIA, Pensions all of which means the client has the funds to pay.

    So, the issues must be value and or competition. The only person who can say if it is value, is the client. The competition within the market will come only come from greater numbers of advisers and offerings, something not likely to happen in the very near future.

    The last twelve months we have seen greater and greater comment and pressure from the regulator re charges. Their aim is clear, but the outcome is likely to be the complete opposite to their drive, as advisers retire, regulation fails to stop pension theft, PI increases or withdraw from the market and providers consolidate or leave.

  8. Nothing story really…

    Just gives some the opportunity to snipe at others about charges, and blow sunshine up their own arse’s, oh look at me I am wonderful I work this way or that way, when in reality…. as Julian has pointed out “nothing of particular interest”

  9. Thinking about this some more it’s a symptom of the muddled thinking around advice and products and the FCA’s inability (or unwillingness?) to conceptually separate the two.

    There are two obvious anomalies within the rules that perpetuate this thinking. Firstly, RDR tried to shift the emphasis to advice but the bedrock of regulatory rules outside this are built around products and this was never addressed.

    Secondly, the definition of independence is based on what products you advise on rather than the advice itself. You can be independent without advising on a number of different investments, including pension transfers, long term care and direct equity and bonds. That makes no sense if the focus is on advice.

    Muddled thinking and inconsistent rules will, not surprisingly, result in little of use out the other end.

  10. It is time for Robo-Regulation;

    A few simple tick box rules that are completed before and after advice is given by the adviser and the client and then uploaded to a cloud-based system;

    Did Client Know the fee the would be paying Y/N

    etc etc

    An algorithm is in place that determines if the client has been treated fairly.

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