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What does £80k’s worth of advice look like?

Natalie Holt, journalist with Money Marketing Photo by Michael Walter/Troika

Debates about adviser charging have been raging for as long as I can remember. Questions about contingent charging, percentage-based fees, fixed fees and the rest have long been par for the course ever since charges disclosure became mandatory under the RDR.

There has been much said on the subject of what clients will pay for advice, and the disconnect between that figure and what it costs to deliver an advice service. But when it comes to actual amounts, in pounds and pence terms, there is no hard and fast rule on what clients should be paying.

As consolidation and acquisitions take hold across the advice sector, a gap is emerging in some corners between what a firm is quoting as the cost of its proposition and what is actually being charged.  Given advice firms have free rein to set their own advice costs, with a view to eventually moving to the “ideal” charging structure, it can take a while for newly acquired firms to adapt to the new way of working.

We have tried to assess what is really going on with ongoing advice charges, but out of the 20 firms approached, only a handful supplied meaningful answers to our questions. The ever elusive transparency on charges post-RDR is yet to materialise it would seem.

Money Marketing has heard of several instances where wealthy clients are being charged £60,000 a year for ongoing advice, and in one extreme case, £80,000.

Obviously advice can be involved, complex and even span generations. As we have been informed on more than one occasion, there may be instances where this level of charge is justified. But is there a firm that can honestly say it is delivering value for money at £80,000 a year? It is doubtful whether the client is even aware of the true cost of their advice.

I am conscious that the focus of any adviser charging debate should be about value, not headline costs. In a way the FCA’s hands are tied on this, because as it has said on more than one occasion, it is not a price regulator and has no intention of becoming one.

But advisers will not escape the notion, rightly or wrongly held, they are in the business of asking for money for nothing until the extremes of advice charges are exposed and challenged.

Natalie Holt is editor of Money Marketing – follow her on Twitter here

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Comments

There are 13 comments at the moment, we would love to hear your opinion too.

  1. I moved a client from a private bank last year and saved him over £30k a year. My costs included investment / product fees and my advice fee. Their fees included the investments and ‘investment management’ only if he wanted financial planning there were additional fees for that on top.

    According to 1825’s own website their on-going fees start at 1.19% for their ‘tailored service’ and 0.79% for the ‘Annual Management Service’

    When I talked to Best Practice about joining a couple of years ago their assumption was that my ongoing fee would be 1%, when I said it wasn’t their response was ‘Why not, it should be’.

    It still isn’t

  2. Q: What does £80k’s worth of advice look like?
    A: A complete rip off.

    Is this client stark staring bonkers?

  3. I am glad that Natalie has commented about the value factor in the advice equation. Many years ago I was in the process of buying a commercial property immediately next door to the premises from which I still practice as an IFA. My lawyer, who is brilliant at lateral thinking, came up with a suggestion that saved me thouseands of pounds both in what I ultimatley paid for the property but also in tax. The idea was fairly obvious after he had suggested it (like most good ideas) but would I have thought of it – no! When his bill came in for the conveyance there was a significant addition under the heading “The value of the advice”. Did I mind paying this? Not in the least. Furthermore, that was a valuable lesson for me as a business man when charging my clients.

  4. I am not out to justify or deny any level of charges. You are being far too two-dimensional and are losing the significance. Of course, we too have seen unscrupulous advisers charging colossal annual % retainers for doing very little (effectively ‘commission’ recycled), charging big transaction fees on changes and other costs and that’s wrong. Also the ‘hidden’ costs from the likes of SJP and OpenWork and so on ought to be reviewed and better communicated to clients but….

    However, one could add such extra questions as:-

    1. What degree of vulnerability is the adviser incurring in the process – a £5million law suit for negligence and yet he charged £500 for his advice on the £10million pot?
    2. Why logically might one financial journalist be paid any more than another. Is one worth more than another – surely the lowest cost one would be ‘best’.
    3. What is the client getting for the fees being paid? Passives may be cheap but maybe this year we have earnt ten years’ worth of overall investment returns for our clients by using our experience and qualifications and taking logical contrarian moves to the consensus. We don’t charge any more than usual for doing that.
    4. A charge has to help sustain the offering – a cheap service where the provider goes bust after two years is not very sensible.
    5. Are we a ‘family office’ in terms of the financial service we provide – in which case could we be employing a whole member of staff to administer and manage a single client’s affairs – what cost that then?

  5. In my comment above, please correct the spelling of ultimately!!

  6. £32M to invest/tax plan/lifetime responsibility @ 0.25% = £80k per year.
    Premier League footballer – kicks a ball about – £13M per year
    Cinema actor – talks and moves – £10m to 75M per picture
    Singer – sings and writes songs – £40M per Year
    Premier League Managers – tell footballers how to play – £15M per year
    Go figure

    • And remember with Premier League Football managers there is the opportunity for “Extras” which may significantly enhance their earnings, however likely to be non pensionable!!!!!!

  7. To quote a good friend of mine when client questioned his fee.

    ” Are you the only bugger allowed to earn a living on this earth.

    The bill was paid the next day.

  8. I am trying not to be flippant or dismissing of this article and many others like it…

    But for the love of all you hold dear, who’s business is it, really, who gets paid what and how much they charge……. nobody’s ! other than the buyer and the seller, so please just get over it, move on

    The world is full of (so called) injustices, of who gets what, and do they deserve it, and what do they do for it

    Is Paul Hollywood worth £4 million to swan about a tent tasting food ? Is a footballer worth £8 million to kick a bag of wind about on a sat afternoon, Is Mr Bailey worth the £800,000 to a million for heading up a quango like the FCA ……… to them yes they are, and also to the people who pay them, (well not Bailey as we pay him and we have no choice in the matter)

    Personally I think I am worth every penny I get, and I have had no complaints from my clients and that is what counts, its got sod all to do with any bystander who bleats from the side oh its a rip off, boo hoo I don’t get that much, well sorry to be blunt old chum, tough
    s??t.

    • DH The fact that your clients don’ t complain is immaterial, if they were given a breakdown of how the fee, for your advice, was arrived at they may well have a case against you. The bystander in all these cases is the FCA, are you going to tell them to “sod off” when you are asked to justify your actions?.

      • Stan,
        How do you you know they aren’t, and in fact they do, on the quotes, on my fee agreements, CIDD they sign and verbally to cement full understanding, so in total they are told no fewer than 4 times, all this again is stored in their very own document folder on their personal web sites I set up for them, ! and further more I always discuss my fees at annual reviews (most of the time to inform them they are going up due to regulatory burdens and levies imposed on my business).

        So the fact they don’t complain is very material, after all a client who has no cause to complain must be satisfied with the service (unlike in YOUR personal view they have been hoodwinked or had material information hidden from them)

        FYI the FCA do know what I charge as its documented in my twice yearly RMAR returns, and “not” once have they challenged me and if they did I might well tell them to sod off, but again this may demonstrate that My personal charges to My personal clients is none of their business, they seem to quite vocal on saying they are not a price regulator.

        Stan please don’t fall into the trap that every-one is a crook in the financial services industry and they hide fee’s or over charge at every given opportunity…….. mind you if you already have ? there could be a well paid job for you at the FCA !

  9. Some of the comments here seem to say that you charge what you think you can get away with and if the client is loaded you can up the ante.

    What about the actual work carried out? At say £200 per hour this equates to 400 hours work – or at least 10 weeks solid work – every year. How likely is that? What difference does it make if the client earns £5 million or £20million? It is the work that is carried out that counts.

    Sure if the client has £10million to invest, one might first ask why he isn’t using a private client stockbroker. But if he is using an IFA does that adviser have the facility to monitor that investment on a continuous daily basis? How much does it actually cost to manage a portfolio of this size? Personally with modern technology I can’t see why it can’t be done for 0.25% per annum. A very nice income if you can get it and just imagine the referrals!

  10. £80k a year for looking after a single client is not something I would try to justify. Then again I wouldn’t criticise another person’s fee without knowing what they provided in return.

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