The FSA may continue to advocate fees over commission but its latest move to force an IFA to lower its fees has prompted intermediaries to call for an investigation from the Office of Fair Trading.
As reported in last week's edition, Money Marketing understands that an IFA firm in London has been told it is charging too much following a visit by the FSA.
The regulator cited its conduct of business rules. It is understood that the adviser is appealing against the decision although it remains unclear what type of advice and service was being charged for.
Advisers are worried that further influence from the regulator on what they can charge will lead to the introduction of a suggested price range. They feel this would be over-prescriptive and are unhappy about this much interference from the regulator in the way they run their businesses.
Jim Clancy of Clancy's Financial Planning believes the latest move by the FSA is an attempt to fix prices. He feels it is unfair for the FSA to interfere in a commercial agreement between the adviser and his or her client.
Clancy says: “At the end of the day, this is my business and I take the risk by running it. My clients judge whether they want to pay my fees and the FSA has no right to come into my business and price fix.”
A number of IFAs who have contacted Money Marketing would like the OFT to intervene if the financial regulator takes any further measures to control the fees firms charge.
OFT spokesman Mark Kram says: “We have the power to look at the FSA to ensure its rules do not have any adverse effect on competition. We are happy to look at any evidence to that effect.”
But FSA head of media Rob McIvor says the regulator has no plans to make any significant change in emphasis in the way that firms are monitored once the polarisation rules are abolished.
He says the FSA intends to look at compliance with new rules to ensure those firms that hold themselves out as independent provide clients with the opportunity to pay a fee for the advice they receive.
He denies there is anything in the proposals that would affect the level of fees that a firm may charge.
McIvor says: “The whole thrust of our proposals is to bring much greater clarity and transparency to the cost of advice, however it is paid for, as early as possible in the advice and sales process.
“The descriptions of what paying by fee or paying by commission mean for the client are intended to set out fairly the pros and cons of each and to enable the client to make an informed choice.”
But a spokesman from the IFA Defence Union, who did not want to be named, believes any move by the FSA to monitor adviser fees would be a restraint of trade.
He says: “No public body has the right to decide what any profession or trade can charge for their services.”
According to the FSA's own research, consumers think a one-off fee for financial advice should be at least £90 (more if a complex product is involved) and as much as £270. The typical fee they expect to pay is £130. The survey revealed that consumers seriously under-estimate the cost of all forms of professional service.
Many advisers say their clients are used to paying hourly rates to accountants and solicitors and are not concerned by the prospect of a similar bill from an adviser.
One adviser cited the example of the fee a large national accountancy firm charged for administering a small group pension scheme. The bill was broken down to an hourly rate of £410 for the services of a partner, £160 for a consultant, £110 for an assistant consultant, £70 for an administrator and £50 for a secretary.
IFAs attending the latest FSA roadshows about depolarisation have been shown a template to use as a guide to charging for their services.
The sample key facts document includes a section on how much the services might cost. Various sections of the document are left blank for the adviser to fill in but the section on charges puts the typical fee for a principal/director/partner at £150£200 an hour, a financial adviser at £100£150 an hour and administration at £25 an hour.
Syndaxi Financial Planning director Robert Reid believes the FSA is in no position to structure fees or begin telling individual firms what they can or cannot charge.
He says: “It is high time the FSA rules were readable and not interpreted. Who is to say whose interpretation of the rules is right in this case?” Sofa plans to carry out a survey of fee-based advisers to determine exactly what they are charging their clients and how much this varies from region to region.
Medical and General Insurance Services adviser David Hemming believes the level of fee you arrange with a client should not be dictated by the FSA. He says: “The FSA is not my paymaster – I pay it ees for its services.”
Clement Rabjohns adviser John Keene echoes this feeling, saying he believes the transaction is purely between the adviser and their client and, because this is a commercial decision, the fee should be determined by the market.
IFA Patrick Cann's firm Pearce Arrow is in the process of altering its charging structure. However, it has run into difficulties in establishing a system that gives clients the choice of fees or commission.
Cann says: “I think it is particularly hard to quantify fees. Using commission, we could cross-subsidise to balance out the products that paid less commission. But we are unable to do this with fees.”
He says the group still intends to operate both systems but will struggle to offer the fees option on complicated cases such as pension transfers. Any move from the FSA to dictate what his firm can charge would make this even harder, he adds.
Clancy's Financial Planning uses a spreadsheet system to calculate what advisers can charge an hour for their services and what each section of business costs.
If one of his advisers were earning £400,000 a year – a similar salary to that of FSA chief executive John Tiner – Clancy would expect them to charge £650 an hour to work in his practice.
Most of the advisers that have contacted Money Marketing have been incredulous at a move by the FSA to dictate fees but Clancy is not surprised. He believes that the step is a strong indication that the regulator will continue to promise lighter-touch regulation while tightening its grip on the way that IFA businesses operate.