I cannot entirely agree with you, Nic, and you have taken only one example as evidence that the fee system is corruptible. By doing so, you have overlooked other issues regarding hourly rates. You need educating.
The FCA, consumer associations and others such as MEPs are foolishly fixated with headline hourly rates. A client fee is linked to complexity, risk, scope of work and the amount. That will then determine who does the work – secretary, administrator, adviser, specialist consultant, director etc.
So the actual rate the client pays can be £156 per hour or any figure down to, say, £80 per hour. You simply cannot shop around based on hourly rates. Of course, for one-person firms, it will always be £156 per hour.
My advice to clients is sit down with your adviser, take advantage of the free initial consultation and get a quote or an indicative cost. It is truly independent, with no reliance on a product to facilitate the charge, and works out a lot cheaper than 3 per cent plus 1 per cent.
As for corruption – if recorded and presented correctly, the actual hours worked can be shown to the client as evidence of the work involved and the client has every right to dispute the bill at that stage.
And advisers should not be afraid of adding items such as specific CPD or research to the bill. How many other professionals, such as IT ‘gurus’, learn on the job and charge you for doing so?
For our firm, fees and timesheets mean that we can meet our capital adequacy requirement of £250,000 without a penny held in cash – something which many commentators on ‘fees versus commission’ naively overlook.
RDR did not ban percentage-based charging. In fact, the only thing RDR did was force IFAs to have a fee agreement signed in advance of work being done.
IFAs are trading businesses and therefore should be treated in the same way as any other trading business.
If a solicitor is able to charge a percentage of an estate when dealing with probate, why is an IFA not allowed to charge a percentage of an investment?
I could give other examples, such as estate agents or credit card companies charging retailers, and many others.
If the FCA moves to ban percentage charging, I would encourage the financial services industry to take the regulator to court.
What matters more than any other factor – always has, always will – is the character of the person providing the service and the trust you place in them, whatever the industry.
It is what all of us as consumers instinctively hope for whenever we want something doing and it is the same for clients looking for advisers.
And frankly, what you pay for that is far less important than the risk of not getting it.
Perhaps the reason we are so overburdened with rules is that the regulator believes it can impose “morality” through the rules. You can’t – not in any industry.
The FSA ruled at one stage that commission was the amount the providers determined would be paid to the adviser; a fee was what was agreed between the client and the adviser. If the adviser decides to charge a percentage of the funds and agrees it with his client, that is a fee.
I cannot believe the nonsense about clients being confused by being charged a percentage. What should we do?
Provide a calculator with every quote?
If I charged £156 per hour, I would be unemployed. I charge £395 per day plus a percentage of the sum initially invested, on a reducing scale starting at 2 per cent down to 0.25 per cent. The daily rate reflects my time and costs; the percentage reflects the risk to my business because of the regulator’s penchant for retrospective regulation and complaint instigation.