Last December I received a letter from my energy provider. I won’t quote verbatim from it, but suffice to say that I was offered a degree of clarity and transparency in respect of my electricity and gas supplies that had never existed hitherto.
Instead of the old, confusing system whereby this provider charged two separate amounts for my kilowatt-hours of energy usage – higher for the first X number of kWh and lower for the rest – I would henceforth pay my bills in a different way.
As of the start of this year, I pay a “standing charge” costing 26.09p per day. This is then topped up by a flat rate of 13.21p for every kWh of electricity we use and 4.128p per day plus the same flat rate for gas.
This new, transparent system is self-evidently much better for householders because we can now tell at a glance how much electricity we use.
The standing charge simply reflects the fact that any provider is required to maintain an infrastructure that actually delivers gas and leccy supplies through a complicated system of pipes and cables, right to my front door
Any similarities with the old system of dual kWh charges clearly shows my complete lack of understanding of what’s good for us. Desperate to find out more about this wonderful new system I discovered that, apparently, if you are a heavy energy user the standing charge works in your favour because you pay less per unit of energy. By contrast, light users are disadvantaged because the standing charges becomes a much bigger part of the overall monthly bill.
What a wonderful idea. Remind me, the next time I go to my supermarket, to insist on a lower set of charges because the chain I visit has to maintain its own infrastructure – lorries, buildings, computer system and so on – as distinct from the actual cost of the food I pay for at the till.
What about my ability to compare like with like? Well, not so fast: all the “Big Six” major energy providers operate different sized standing order charges. In effect, it’s a crapshoot out there, with the cost of both sets of charges oscillating widely, depending on how much providers want to charge. What this means is I’m no better off with this new system of charges than I was with the old one.
I was thinking of this Brave New World the other day, as I read Chris Gilchrist’s column in Money Marketing, calling for greater clarity and transparency with regard to how they structure their fees in the post-RDR world.
Chris argues that there are two ways of looking at the issue. “One is that as in any other service industry, advisers will naturally seek to break a large fee into smaller bite-sized pieces to make it more acceptable to clients.
“The other way of looking at it is the rather more cynical view that those scales of percentages bear a surprisingly close relationship to the old commission scales the product-floggers used before RDR.”
The problem, for Chris at least, is that all the different methods currently used by advisers to create their fees are more likely to lead to confusion among savers than clarity. Ironically, he adds, the cost of implementation is actually lower than the bill an adviser might want to charge a client for advice, which rather tends to undermine those who want to charge to apply the decision.
Chris concludes: “It will take the media a while to get their heads round how to compare adviser charges, but they will.”
I sort of agree with him on that, subject to all sorts of caveats about how stupid so many of us really are when it comes to adding together all the disparate elements of an IFA’s charging structure.
But it strikes me that Chris is missing one vital point in this equation, namely that price is not always what really matters when one goes to see an IFA.
When I compare prices between energy providers, I know that – ultimately – I am trying to match the cost of a given item that all Big Six are capable of supplying. Indeed, in every case my gas and electricity comes through the same pipes and cables.
However, when I visit an IFA, what I am looking out for is something less immediately tangible: I am looking for an adviser’s ability to make sense of the financial world and offer me genuine advice as to what I should be doing next.
When I compare IFAs, it isn’t necessarily prices that I’m looking at. What I want to know about more than anything is service, particularly the ongoing once-over that my financial adviser will provide at least once a year when my products are reviewed and we decide what next steps to take to maximize my earnings. And there are plenty of advisers who will be claiming to look after that specific need – with fees nowhere near as important as an ability to do the job properly.
Which is why, important though Chris’s analysis is in terms of pointing out how some advises hope to bury their charges, he is also too “pessimistic” about the impact it will have on consumers. I predict many more happy years of hidden and poorly-understood charges from this sector.
Nic Cicutti can be contacted at firstname.lastname@example.org