Robert Reid: Percentage-based charging leaves advisers vulnerable


As we move into the second month of a new year, the long-standing debate on fees versus commission goes into reverse.

The RDR was meant to move the power from the providers to the distributors, with the client calling the shots on adviser costs.

However, we still have 95 per cent of the market working on potential and not pounds, charging minimal fees for planning in the hope the costs will be defrayed by the charge on investments.

The ongoing reliance on percentage-based charging (and yes, we do it too) makes us vulnerable. As the market falls our interaction with clients increases, yet our income falls at the same time. When the market is motoring along nicely, the time we spend with clients is far less.

I am not suggesting a move to fixed fees will work for all but the current love affair with a flat 1 per cent charge on investments is destined to end in heartbreak or, at the very least, a reduction in revenue.

From a personal standpoint I would love the bulk of the market to move back to commission as it would make our marketing so much simpler. However, the real challenge with such a reversal will be the capping of exit charges, which in many cases are a product of commission structures or adviser fees.

If exit charges are banned, then those that currently rely on them will need to adjust their fees to reflect this. That is no easy task.

Regardless of what comes next in this debate, though, the industry continues to face the challenge of public engagement. There will always be people who cannot afford advice, but this is true in all sorts of areas, including the legal and accountancy worlds. In many cases the pro bono projects pick up the slack, yet we have been forced into paying for a service the public is not engaging with in large enough numbers.

Advisers need to consider how they can reduce their own costs in order to maintain their profitability. We clearly have no control over regulatory costs but there are other items of expenditure we can take charge of.

For example, we hear time and again about the importance of one-to-one meetings, yet when we asked our clients for their view on this they told us they were very comfortable with the concept of virtual ones.

With this in mind, when I was out of the UK in December, I connected with clients using an application that allowed me to see and talk to them, and even drag videos and documents into view.

Applications like this, that can deliver quality service at a lower cost, will play an important role in the drive to reduce costs and maintain profits.

If we are to prosper, we need to stop changing labels and start changing practice and processes. Going backwards will not allow us to deliver this at any time.

Robert Reid is director at The Ideas Lab