More than one journalist has criticised me over the years for comparing financial products to products such as cars and household goods. Clients do get it, however, which suggests that I am more in tune with what they want than are my critics. Those who can do, those who can’t teach.
Just after Christmas three things happened within a week of each other. First we had our six-monthly compliance visit by Simply Biz. Next we had our gas boiler replaced and on the day the plumber came I participated in Radio Four’s Money Box with your friend and mine Paul Lewis.
The subject under discussion was pre-RDR trail commission and post-RDR ongoing adviser fees. Paul was on his usual hobby horse about trail supposedly being unearned.
During our compliance visit we discussed our post-RDR charging model which is the same as the pre-RDR version.
Typically we charge 3 per cent initial for investments up to £250,000, reducing on a sliding scale thereafter, with an ongoing adviser fee of 0.5 per cent pa.
We have operated this model since 2004 regardless of the investment type. Oeic, Isa or Sipp – it’s all money.
Probing us professionally as he does, our compliance officer asked what we would do if a client just wanted us to build a portfolio for him and then walk away, i.e. not agree to an ongoing fee. My reaction was that we would say thanks but no thanks.
He then asked – so what if he wanted to invest £100,000 – would you turn down a £3,000 fee?
I have to confess to pausing for a second – but only a second. The answer was yes, I would still decline to act.
Why? Because a client who needs advice to invest £100,000 is still going to need advice some months or years down the road when the Euro implodes or interest rates rise or North Korea’s leadership gets even more stroppy and psychotic than usual.
Sure, some clients may say they do not want ongoing advice and service, but you know what? When the viscous waste hits the fan they will sure want it then. I never want to turn away a client with the words “You chose not to pay for our service so I can’t help you”, and we all know that any client who does hear such a message is likely to allege that the investment was mis-sold in the first place.
Paul Lewis, of course, would probably argue that we should just quote a one-off fee when the clients asks for service.
In that event the only realistic fee would be an amount equal to all the ongoing fees we would have earned had the client not opted out in the first place. Which is about what my plumber would charge me if I’d not had my boiler maintained and it went pop.
As it is I’m paying £70 a year to maintain the warranty – 5 per cent of the purchase cost. If I do not have it serviced, the repair when it is needed will be a far more expensive matter.
Fair ongoing fees for advice and service make sense. Paul Lewis may think otherwise, but as I say, those who can, do, and those who can’t teach.
Neil Liversidge is managing director at West Riding Personal Financial Solutions