View more on these topics

Fixed fees nine times more popular than percentage charges

Auto-enrolment

Fixed fees are nine times more attractive than percentage-based adviser charging, a new survey suggests.

3,000 UK workers were polled in a study commissioned by advice and insurance firm Drewberry.

Half said they would prefer to pay for “standard” pieces of advice, for example setting up a pension, with fixed fees.

This was twice as popular as the next highest option: returning to traditional commission. Hourly advice fees were the favourite choice among 21 per cent of respondents.

Only 6 per cent said they favoured percentage-based agreements, despite most advisers still charging on this basis.

Drewberry director Tom Conner says: “This shows that we still have some way to go as an industry to get the idea of fee-based advice across to the man in the street.

“Our results suggest that, by and large, Britons tend to lean toward the options that are easiest to understand. Just over half of Britons like the idea of ‘set fees’ for ‘standard’ pieces of work, for example, but many advisers have struggled to price their services in this way as there’s no such thing as a ‘standard’ client which makes fee calculation more complex.

“This also explains why, almost five years on from the introduction of fee-based advice, nearly a quarter of Britons say they would still be willing to pay traditional commission. To many, it’s still an easy to understand, painless, option. Despite its shameful track record, concerns as to commission bias haven’t really penetrated the zeitgeist.”

In a data bulletin in October last year, the FCA said that 48 per cent of advisers used percentage fees to cover initial charges, compared to 22 per cent for fixed fees, 20 per cent for hourly charges and 10 per cent for combined structures.

Recommended

3

Platforum: The gap between clients and platforms on fixed fees

When given a choice between a fixed-fee or a percen­tage-based charging model, investors prefer fixed fees. Platforum’s consumer research reveals when presented with a scenario for a £20,000 lump sum with either a 35 basis points or a £70 fixed-fee platform charge, active private investors are more than twice as likely to say they prefer […]

6

Alistair Cunningham: Charging biases need addressing

We are all fallible humans, each with a complex set of biases influenced by our past experiences and other incentives available to us. Contingent charging is an area where this bias is at its most extreme. But although it has been called for by some, I would not ban the model. The problem could well […]

Great expectations for Japan

By James Dowey, Chief Economist and CIO Turnaround stories are an investor’s best friend. If successful, they prompt a widespread and possibly radical re-evaluation of the fair value of the associated assets. If one is brave enough to re-evaluate early on in the process then the returns can be very large. For over two decades […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Unless you are starting a business from scratch, or cutting away a number of clients, running an exclusively fixed fee model will prove to be better for some clients, and worse for others.

    If you assume that businesses cannot afford to reduce their revenue, with increasing regulatory costs and the need for highly qualified advisers, the likely outcome is that the clients with larger funds will pay reduced fees, those with smaller portfolios may see a large increase, which they are not prepared to pay. The result is that even more consumers have no access to affordable advice.

    I have seen many firms with the fixed fee structure, it is a good model for those that can afford it, but cannot be a one size fits all solution. Personally, I am a Chartered Financial Planner and qualified DFM, my clients have no problem with my earnings increasing in line with their wealth, and sharing the pain in difficult markets.Not perfect, but we all know where we stand.

  2. So what, would be my question. I work on percentages (with overall minimum). All clients are happy with this model for last 28 years. If any new potential client wants me to work for them either takes it or leaves it. Whatever works profitably for the adviser is the only important thing on my view. If it doesn’t work for the adviser he/she won’t survive. Would be interested to see what the reaction would be if the set fee was £2000.

Leave a comment