I read Money Marketing news editor Justin Cash’s recent blog “Advisers should justify charges uniformity” with real interest.
He is absolutely correct in that the regulator is keen to understand the pricing dynamics of both advisers and fund managers and whether there is real competition among them.
I have written in this column before about my thoughts on fund management and platform fees, so will concentrate here on adviser charging.
Justin is also correct in his assertion that advisers who have embraced platforms and technology should have seen some costs savings and these should have perhaps been passed on to clients. Regulatory costs have also fallen to a certain extent, which he says adds further to the argument client charges could be reduced.
But while these are valid points, the argument around charging is a lot more nuanced than that.
Business owners will be well aware it is not just technology and regulatory fees that contribute to what it costs to run a company. All businesses are subject to lots of costs that are subject to market forces, some of which we have little or absolutely no control over.
The sheer cost of just staying in business continues to rise. Rent, telecoms, office equipment, insurance and stationery are all subject to upward inflationary pressures. Staff salaries, benefits and pension costs also continue to climb.
Quality marketing materiel, digital output and client events and collateral are subject to these same pressures. But they are all very necessary in the modern advice business. And at least the costs and efforts made contribute to greater client understanding and satisfaction.
Over and above all of these normal and expected costs comes the need to meet increased capital adequacy requirements. Then, perhaps the most vexing of all for business principals, there is the ongoing need to keep suitable capital reserves available to meet the dreaded Financial Services Compensation Scheme levies whenever they may be requested.
So it always seems like a bit of a “push me, pull you” situation around costs and charges. Good firms want to offer excellent service, and a quality communication and digital experience to clients, but at the same time maintain sufficient reserves for capital adequacy and unexpected FSCS demands.
I would argue that we are already seeing some moves towards the established charging wisdom referred to by Justin and the regulator. We are seeing fixed fee pioneers, either in totality or in part for specific client segments and activities. They may be rare but I suspect that, as was the case with the pre-RDR fee pioneers, once firms see what is possible and become more confident in their discussions around fees with clients, this trend will gather pace.
As ever, lots to think about as business principals. The charging issue is nowhere near as black and white as it may seem at first.
Lee Robertson is chief executive of Investment Quorum