A question of decency: How much is too much to pay for advice?


Advisers are being challenged over the appropriateness of ongoing advice fees as it emerges clients of major advice brands are being charged upwards of £60,000 a year for advice.

Money Marketing has sought to quantify exactly what is being charged and approached 20 adv-ice firms for details of what they charge for ongoing advice and what their top- paying client is charged in pounds and pence. Firms were also asked about their stance on decency limits, where a threshold is set on the maximum amount deemed reasonable to charge for advice.

Of the 20 firms approached, including nationals and networks and spanning independent and restricted business models, only seven provided substantive responses on their ongoing advice charges.

Anecdotally, Money Marketing has heard of cases where some clients are being charged £60,000 a year for ongoing advice, and in one case £80,000.

So how do firms monitor what is being levied as an ongoing advice charge? Are all clients fully aware of what they are paying for ongoing service in monetary terms, and would they be able to challenge this if the promised service levels are not delivered? And what is the regulator’s role in policing whether clients are paying too much for advice?

Flags and breaches

Some advice firms choose to operate decency limits and monitor whether these are breached as part of their compliance checks.

Best Practice, for example, quotes an average of 0.74 per cent a year for ongoing advice including discretionary services. It says 93 per cent of clients pay the quoted ongoing advice fee.

The network has set its decency limit at 1.25 per cent for ongoing advice, and cases are flagged on its system where the charge is above 1 per cent. Cases are also highlighted where a fee is more than £25,000.


Chief executive Ian Cooke says: “There’s a limit to what we think an IFA should charge, and the FCA would expect us to police that. 1.25 per cent is probably too high anyway, but you have to set the bar somewhere.”

The company asks advisers to justify where charges are over 1.25 per cent, and valid reasons may include if other services are bundled into the advice charge.

Cooke says he has come across firms charging inappropriate fees for advice.

He says: “I had a lottery winner who won a multi-million pound jackpot, and his bank was charging 1 per cent for ongoing advice. They also charged him £120,000 to set up a couple of bonds. It is outrageous.”

He points out wealthier clients such as professional sportspeople would tend to opt for a fixed fee.

Standard Life-owned 1825 quotes 0.79 per cent for its annual management service and two thirds of clients are paying this. Its threshold for the service is set at £14,750, and again advisers are asked to justify charges beyond this.

1825 chief executive Steve Murray says the company is keen to ensure advisers are delivering value for money and striking the balance between the service being provided and the level of fees.

He says there may be circumstances where an ongoing advice fee of £80,000 is acceptable.

He says: “There may be scenarios for any advice business where if there was a huge amount of work involved, with lots of tax and trust planning across business and personal lines, an advice business could deem it was appropriate to pay that amount of money. We have to be careful with headline numbers, but until you understand what the activity is it is difficult to see whether that’s right or not. If an adviser is working full-time on that client for six months of the year, that could be incredibly good value for money.”


The cost of advice

Many commentators are quick to point out that the focus needs to be less on the headline figures and more on what work is being done in return. However, they admit that upwards of £60,000 for ongoing advice sounds excessive.

Cooke says while running an advice firm is not cheap, given the levels of vexatious complaints and the cost of regulatory bills, there is still a question of what it is reasonable to charge.

He says: “The FCA’s rules say you have to offer the consumer good value. That’s easily relatable to adviser charging because it’s not reasonable to charge a fee that is much more than what you are offering in value. That’s common sense.”

The Ideas Lab director Robert Reid says: “Sometimes with quoted charges it’s more aspirational than reality.

“One of the things that’s driving the decency limits issue is too many advisers are dealing with people who do not have enough money, and the average account size is too small. Sometimes ongoing advice charges will look bad in small cases where it’s percentage-based, but they are actually quite reasonable. Then when you look at large cases, the percentages look absolutely outrageous. The difficulty is deciding what’s ‘decent’ and what is not. What it comes down to is time cost versus what is charged. I would question how anyone could justify £80,000 worth of work.”

Reid says the reality of regulated advice is it carries a fixed cost, and estimates that to open a new client file can cost between £1,000 and £1,500. He also acknowledges advice will sometimes cost a lot because of the work involved.

He says: “There is a difficulty in taking on some advice work, such as occupational transfers, and that creates a greater reluctance to cut charges. Advice is taking longer and in some cases charges are insulating advice firms. If there was a clear way for clients to work out exactly what they were paying, some clients would have a real problem. It would cause ructions.”


The role of the FCA

The question of what is appropriate to charge for advice may be one for the FCA, but the regulator has previously stated it does not want to intervene in policing advice costs.

Threesixty managing director Phil Young says: “The FCA has a conflicted position on this. It doesn’t want to be a price regulator, but it does want markets to work for consumers. That must include ‘self-defeating’ pricing whereby the costs of advice and investment outstrip the benefits, regardless of how much ‘service’ is provided. How the regulator makes this so obvious to consumers they can decide for themselves is a considerable challenge.”

Reid argues the decency limits problem is symptomatic of a wider issue with charges disclosure post-RDR.

He says: “If you go to some advisers’ websites and try to find their charging structures, they can rarely be found, or you have to spend a long time hunting around for it.

“Disclosure has failed. I wish people would stop saying we’ve moved on from the RDR, because we really haven’t. I can’t see any evidence of that. What happens if clients want to know what they get for their money? I’m not sure the answer of ‘peace of mind’ is going to cut it.”

Personal Finance Society chief executive Keith Richards does not think the FCA should prescribe decency limits across the advice sector. But he says it should have a view on what are appropriate charges to pay for the benefit of receiving advice.

He says: “The FCA has made it clear on a number of occasions that it will continue to monitor fee practices and in particular contingent fees, but does not want to set limits. The right approach is for advisers to individually agree their respective fees with their clients based on their service proposition and provide full and meaningful disclosure of all charges.

“In isolated cases where advisers seem to be flouting the principle or spirit of fair charging, it is incumbent on the profession and the firms facilitating adviser fees to report such evidence-based cases to the regulator for further investigation.”

Expert view: Malcolm Kerr


I have heard of clients being charged between £25,000 and £50,000 for ongoing advice, and even that has raised some eyebrows. A lot depends on exactly what service is being provided. The really important thing is the client fully understands what the fees are and is comfortable with the level of service being provided. That service should be very clearly documented.

The regulator would be concerned from a treating customers fairly point of view if the client was paying an unreasonable amount of money in return for a relatively straightforward service.

On the face of it, it does sound like an enormous amount of money, but it is not inconceivable that an adviser is allocating one full-time person to look after a complex set of arrangements where the adviser is running a concierge-type service alongside running the money.

Rather than the high-net-worths, I actually worry about the implications of unreasonable charges at lower end of the market. If someone has £100,000 and is being charged 50 basis points, and they are being promised certain levels of service and a certain number of client meetings, how is that being delivered? Obviously what’s happening is the client with less money is being subsidised by the client with more money. That is the reality, but clearly this is not necessarily in the interests of the wealthier clients.

The FCA is not a price regulator but it is not unreasonable for it to expect advisers to deliver a satisfactory outcome to clients. If the advice fee is using up more of the fund at a faster rate than the fund is growing, it becomes less about “decency limits” per se but what is reasonable.

Malcolm Kerr is senior adviser at EY