Richard Leeson: FCA must clear up advice charges confusion


A few weeks ago, Money Marketing ran a story headlined “Sunday Times takes SJP to task over charges”.

The piece explained that several readers had been in touch with the Sunday paper concerned about a lack of clarity surrounding the cost of advice from St James’s Place.

One reader told The Sunday Times: “I use both Hargreaves Lansdown and SJP and both are reputable organisations. Hargreaves Lansdown’s fee structure is very transparent, while SJP’s is anything but.

“Whenever I have asked about its fees I don’t get simple answers, as its fees are incorporated in its unit cost pricing structure, so nothing is transparent. SJP prefers not to talk about fees but focuses on the quality of its investment advice and the personal service to clients.”

Another reader said: “I recently tried to get to the bottom of the fees and charges levied by four advisers, and only SJP has been difficult.”

From the readers’ comments, it would seem they have been unable to obtain a clear answer to a pretty reasonable question.

A question which, from their comments, others have been able to answer with adequate clarity.

It is mystifying to me that such an outcome can be regarded by SJP or the FCA as being in keeping with the principles in the FCA Handbook, which state that “a firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading”.

If a client asks about the cost of advice it seems wholly reasonable to me that a regulated firm, even a vertically integrated firm, should tell them in percentage terms and in pounds and pence so that they can make a properly informed decision.

What is more, that lack of information on the cost of advice means that the investing public are denied the opportunity to compare the market.

A non-vertically integrated firm would be required to clearly specify the cost of advice but a vertically integrated firm is not.

How can an investor assess the competitiveness of the costs of advice in that situation? How can such a situation allow the market to find its level?

The response from SJP was that clients are only interested in one overall charge that covers advice and fund management.

It said: “If you go to John Lewis and buy a television or a computer, you don’t ask for the breakdown of the costs to find out what the margin is that John Lewis makes versus the manufacturing costs and everything else.”

This seems to be at odds with the expectations of the readers quoted in The Sunday Times. It certainly makes it difficult, if not impossible, for clients to assess whether they are receiving value for money in the ongoing service from their adviser.

But what if SJP is correct and that clients do not care about the underlying breakdown of costs? That surely must be the same for all investing clients and not just those approached by SJP.

If we follow the logic, all clients would prefer to have a single price for product, advice, ongoing service and investment management. If true, then surely all advisers should be providing this packaged information and not just those working for vertically integrated firms?

Taken to its logical conclusion then we must tear up the entire Retail Distribution Review because it fails to meet this packaged price panacea that we are told people really want.

The FCA will surely want to address this situation. If its principles of “clear, fair and not misleading” communications with investors are to be taken seriously, then it must address the concerns raised in The Sunday Times about the cost of advice being made clear by vertically integrated firms.

If, however, it believes the line taken by SJP, then surely it will want to take steps to allow all advisers to provide this single-price approach in their disclosure.

Perhaps it is time to look at the issue of contingency advice fees. If an adviser is only rewarded for the successful sale of a product, one has to wonder if that might influence behaviours in the  same way as commission did before RDR.

Richard Leeson is chef executive of Adviser Advocate