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How adviser charging is starting to evolve under the RDR

While most firms are still using percentage based charging, there are signs advisers are adapting the traditional ’three plus a half’ model.


The FCA is determined that competition will increase as a result of adviser charging.

Early indications suggest its dream will come true if evidence from the current series of Personal Finance Society regional events is accurate. While this is based on anecdotal data and straw polls there seems to be a shift toward clients paying direct for advice, particularly initial work and a move away from “three plus a half”.

In broad terms around 80 per cent of firms are continuing to operate a percentage based charging structure with a high proportion tiering their initial charges. A smaller number are tiering ongoing charges and many have made the move from 0.5 per cent to around 0.75 per cent.

The tiering on initial charges was expected and is the strongest evidence of competition, particularly as clients are more likely to understand what is going on with initial work and perceive it as a package of activity.

It is a matter of time before that same competitive pressure works through to charges for ongoing service. At present there is a minority of firms who argue that an ongoing charge of 1 per cent will be hard to sustain unless the service is very hands-on and bespoke.

The move toward fee based project work at the initial planning stage is interesting and seems to be occurring more quickly than expected. Indeed, firms who have been running adviser charging or a close equivalent for some time show a trend from percentage charges to fees for initial work, although continuing with percentages for ongoing. In a high number of cases this is backed up with minimum charges to make sure work is paid for. 

“Three plus a half” seems to be have been an initial stepping stone into adviser charging for some firms. This is not an unreasonable way to enter a new set of rules and trading conditions and there will inevitably be some who have not moved on as indicated in the thematic review from FCA published in July.

However, many have responded to market pressure and modified their approach and it would be expected that a large number of firms will alter their tariff within the first year of adviser charging as the market settles. But the word “settle” is used with care and does not imply a return to the high degree of stability that existed under the old commission based system.

There is no doubt the market dynamics have changed and that the price of advice will be a much more significant part of the competitive toolkit than commission rebating or enhancing the monies invested ever was in the previous regime.

David Shelton is the author of “The Business of Advice” book and website



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

  1. Much as I like David and agree with many of his insights, I am afraid I totally disagree with him on this. We run a graduated 3 + 1 proposition and see virtually zero price pressure. But we do deliver exceptional service.

    Absent outside influence (and FCA says it will not regulate price) in a free market the sole determinate of price is supply and demand. Today there are less advisers and, especially in the run up to auto enrolment, an increasing need for advice. It is totally counter intuitive to suggest that price will fall when there is increasing demand and contracting supply.

    On the other hand just as those remaining advisers have now largely sorted their RDR propositions and need less consultancy, many former advisers and broker consultants are now trying their hand at consultancy – so any downwards pressure on price might well be in consultancy!

    Sorry David!

  2. Yesterday’s regional PFS seminar was on this subject and some fo the material came from David Shelton which makes this doubly interesting.
    One of the issues was the FCA and NMG research (of which it appeared I was the only one in the room who’d read and amended their terms to take the FCA guidance on board, only problem is we can’t use it yet as I am still arguing with the FCA over inclusion of mention of longstops in our terms!) that research included the bit empashing that firms quoting a % MUST convert that in to £ for the client and not rely on them understanding %. I had a very interesting situation where a client said he was being charged 7% on a loan and he thought that was over the term rather than per annum as he’d not looked at the APR! Even intellligent people will think 0.5% sounds fair compared to a stakeholder at 1% until you point out to them, that the percentage needs to be multiplied by the sum you are calculating it on!
    As to should the charge be 1% or 0.5% for ongoing advice, surely it depends on what the client is getting from the advisroy firm for the %, if there is a DFM fee involved as well for instance.

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