According to the FCA, 73 per cent of adviser firms failed to provide the generic information on how they charge for advice and/or failed clearly to confirm the specific cost of advice to their individual clients in a timely fashion.
This thematic review from the regulator is a worrying document indeed. Post-RDR the expectation was that adviser charging would make it much clearer that consumers were paying for advice and at the same time help to promote competition.
The advisory sector seems to have a habit of collectively shooting itself in the foot to the extent that a recent article in the Daily Mail was headlined “7 in 10 financial advisers still mislead clients”. Well, that’s just brilliant. That is bound to help restore some of the trust so many commentators tell us has gone out of financial services (sarcasm is one of my greater strengths).
Forget for a moment what the FCA wants in terms of adviser charging disclosure. Instead, let’s try to look at it from a consumer perspective.
It is a highly technically complex financial world out there and for all kinds of reasons consumers want impartial, independent financial advice from qualified, skilled and experienced financial advisers (of all types). It must be blatantly obvious to all that those clients will also want to know how much they are going to pay for those advisory services.
There is a multitude of adviser charging systems vailable to the consumer but it simply doesn’t matter which one is employed. What matters is the client can easily and transparently work out what it is going to cost them. It is perfectly possible for an advice firm to describe
a) their method of charging (hourly rate, project fee, percentage of what is to be invested, or a combination);
b) an indicative price based on the advisers experience of how long/how difficult a task is and;
c) a specific price for that particular client. In fact, if this is hard to do either the adviser needs to improve their communications skills or accept they have over-engineered what it is that they do.
The obvious response here is to try to blame the regulator but that is just disingenuous. Clients want to know how much is it going to cost and whether they are going to get value for money. If an adviser cannot answer those questions then they should seriously consider a new career path. Or alternatively let’s pass the buck to those wealth managers and private banks who were specifically mentioned in the context of disclosing charges in a durable medium, conveniently forgetting that this was a review across all types of advisers.
If an adviser cannot answer a client question about price, directly and transparently, then let’s hope their prospective clients vote with their feet.
Nick Bamford is executive director at Informed Choice