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Peter Herd: Let’s stop apologising for our charges

Peter Herd MM blog

On Friday, I received a phone call from the BBC’s Money Box inviting me onto the show to discuss IFA fees. Unfortunately, I was replaced by Neil Liversidge who did a good job of getting across the message that IFAs do fully disclose fees.

What I was concerned about was Paul Lewis’ single-minded viewpoint of just concentrating on charges rather than showing the whole picture to the consumer.

IFAs are like any small business in terms of running costs but have the additional burden of significant regulatory costs and capital adequacy levels to maintain.

Instead of apologising for our fee structures, I firmly believe we need to educate the consumer of these costs and to highlight the levels of protection they enjoy.

Is it fair to compare a full face-to-face advice service with an online execution-only model? The answer is obviously no.

Many working in the media seem to think almost everybody is able to go online and sort out financial matters when in reality many find financial planning confusing and baffling.

I would even go further and say that information found online can be dangerous and the chances of online fraud should not be underestimated. For instance, look at the increased number of Ucis and Ponzi schemes being closed down. Of course, there are many reputable investment platforms online as well but it does highlight some of the reasons why people should seek advice.

I have myself argued for many years that our industry needs RDR to force advisers into fuller disclosure of fees. Instead of apologising for our fee structures, we need to concentrate on the benefits to the consumer and educate the media on the significant costs faced by the profession.

I often enjoy Money Box and we should not see Paul as the enemy but instead try to educate him that we offer a different type of service to online solutions. I would also want to highlight to Paul the unfairness that IFAs feel in respect to not having a level playing field in the advice arena.

We have to compete with online firms and some journalists who operate websites for commercial gain without holding authorisation in the field that they write about. If RDR sought to break the link between products and advice surely advice is the thing that should be regulated in all of its forms.

Like many advisers, I feel that the present funding system of FSCS is unfair as it punishes those who remain in the industry who have worked with integrity and have not been involved in misselling.

I would like to see the introduction of a product levy and even a licensing system of products to take away some of the potential misselling liability as often most of this comes from poorly designed products.

I’m afraid it looks like a dim possibility and therefore we require the IFA community to sing with one voice in an attempt to educate both the general public and those in the media. Advice has never been free and we should stop apologising for the fact that we have to charge a fee.

Peter Herd is managing director of Essential IFA

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Comments

There are 14 comments at the moment, we would love to hear your opinion too.

  1. couldnt agree more. When you break down the adviser charge with a client into Network retention (if applicable) FSA (& MAS) Fees, FSCS fees, Additional FSCS levies, PI Insurance, business costs and finally Tax and NIC, most clients fully inderstand. Especially when they see the percentages of regulatory costs we incur along with the protection they are offered. and a lot say the had no idea of what we had to pay simply to open the doors and keep them open. Try it and see how you get on

  2. I agree absolutely. In a similar vein my question to Paul Lewis would be why is there a need for a Radio 4 programme with all the resultant costs when the internet could provide a similar solution for those who are so minded? Likewise why have GP’s when NHS direct is available on-line? And so on and so on.

    Obviously cost will always be a factor in any transaction but so is value. I saw a chap yesterday who has an Equitable Life pension, he’s received a plethora of documents and frankly is bewildered. I quoted a fee to investigate and report back based on our business’s unit cost. He didn’t get why I wasn’t prepared to do a pile of work for nothing and left saying he’d think about it and would have a word with his bank.

    I doubt I’ll hear from him again but can’t help but feel he’s leaping from frying pan to fire. He could try the cheap and cheerful internet or even ring Moneybox but it’s improbable that he’ll obtain a solution to his query as to what to do. As with many decisions in life, one generally gets what is paid for.

  3. Well done Peter, you are right on target.

    I would however add that our fees and services also get compared to solicitiors and accountants yet they do not have to bear the regulatory costs we are forced to endure and their PI rates are a fraction of what we have to pay. For many IFA firms the cost of regulation is like paying corporation tax twice. Tell that to your accountant and wait for a surprised reaction!

    I am seeing letters from high profile online services going to my clients offering a free review if they have more than £100k. The objective of course being to get them hooked into their online service. Some clients will like going online most days to graze the information and some will even alter their investments as a result but i predict that many will in time miss their ifa relationship and will come back, probably when things go wrong, they have less time for DIY or they experience one of lifes “events” & we will be here to pick up the pieces.

  4. i agree with Peter on this. a ptroduct levy would have sorted Keydata problem. we had clients with small parts of portfolio in tgeurclufevsettlemnent plans. but no Arch. clients paid by fscs for keydata’ s flaws NOT advice complaints, as advice was not flawed as part of as balanced portfolio. yet ifas are still picking up cost via fscs levy and Herbert Smith’s legal fees fir iften unsuccessfulnattempts to obtain sigmificsnt sums from PI or IFA tgrough inappropriate and costly legal action. he who asserts must prove…

  5. Well said. I get infuriated where examples are given which are not comparing like with like.

    One example being the ‘old world’ cost of a tracker (say 0.3%) vs active fund (say 1.7%) – but this negates to mention that the 1.7% includes the cost of advice and a platform. Strip them out and you’re probably looking at nearer to 0.8%ish – but the articles always seemed to compare 0.3% vs 1.7% and fail to mention the rest.

    The same goes for the cost of ‘advice’ – people can go into WH Smiths and do their own will for a few quid. Please therefore don’t ask a qualified solicitor to use his years of experience in providing advice and guidance and then question why he also can’t do it for the same price.

    People are having ‘cost’ rammed down their throat and they are losing sight of value – the recent ‘burger’ debacle being another example.

    As Peter rightly suggests, an IFA firm has sizeable costs even before you start to pay wages. If clients want the ease and protection of seeking advice, they can’t expect to pay no more than where they would have to do their own analysis and research, admin and paperwork themselves.

    I know there are many RDR dissenters our there but for me, getting adviser charges squarely out in the open is a healthy thing for firms who care for their clients – what doesn’t help is when the cost of providing this care solely portrayed in a negative light.

  6. The trouble with comparing with Accountants/Solicitors is that they have to have years and years of education/training before they can offer advice, which is why they should be paid more than IFAs in my opinion.

  7. Anonymous | 30 Jan 2013 1:53 pm

    I think you will find that IFA’s equally as qualified as solicitors and accountants as we are specialists and some others of also gone on to get qualifications higher than the minimum required by RDR. I think you will find it takes a considerable length of time to get qualified as an IFA nowadays even after passing the necessary qualifications there is still a further training programme to go through.

    In respects to liabilities IFA’s have much more potential for claims than either an accountant or solicitor as neither of these professions have the same level of regulatory requirements as IFAs. In fact the SRA is much more mild regulator then the FSA and has charges nowhere near ours therefore it is arguable that solicitors should be cheaper than IFA’s.

    In saying that I recognised that they have knowledge which other people don’t and I don’t want to get into a price comparison with solicitors or accountants as we each have something to bring to a client. I just wish the accountancy and solicitor practices would stop giving financial advice without having the correct licences and recognise that the IFA’s are also a profession

  8. I appreciate those points. However, the fact remains that someone with the equivalent to not much more than one A level can become an IFA, whereas to become a solicitor would involve Top A Levels, degree etc etc

  9. Anonymous | 30 Jan 2013 3:55 pm

    I think you’re missing my point it’s not just about qualifications it’s about how much it costs to be regulated. If the client takes out a pension under a full advice system, we don’t only just have the liability for the initial advice we have the liability for the lifetime of that contract as the client can sue us 20 or 30 years later – that is not the case for a solicitor.

    If we didn’t have the costs of the regulatory system or the level of security for the consumer or indeed the fear of being sued by a solicitor or claims firm the maybe we wouldn’t have to charge so much!

  10. Peter Herd 4:36 pm,

    I agree fully with you points about the cost of regulation but let get it right, IFAs are not a profession akin or of the standing of accountants or solicitors.

    More in line with plumbers or electricians, both of whom need to be registered, fully qualified and have the goal posts continually moved regarding reporting and regulation and registration.

  11. at anon. IFAs all have a minmum of level 4 now which is equivalent to the first year of a bastchelor’s degree. i think Peter has a level 5. many ifas have other degrees or qualifications too. Most silicitors have a degree in law only suspect. A lot of ifas niw have level 6 i.e degree or are nearly finished.

  12. Adrian Philips | 30 Jan 2013 7:19 pm

    I think you’ll find many IFA’s are just as equally as qualified as solicitors I myself hold a level V Diploma, which is one below a degree and I am also studying for a level 6 and may choose to go on to get an MBA

    I am disappointed in your viewpoint as instead of choosing to show what each trade can bring to the table you have chosen to try and diminish the IFA profession which is your choice, but I’m not going to join in and diminish those in the legal and accountancy profession, where there are some excellent professionals. I repeat the fact that we have considerable costs that solicitors and accountants don’t have and instead of trying to justify yourself in your Crystal Tower maybe you would like to demonstrate what solicitors can bring as a service proposition

    As a professional, I’m always interested in improving client outcomes and if that means introducing the services of a solicitor or an accountant then I’m happy to do so. What angers me is solicitors that offer wealth management is without having the proper FSA registration through the Exempt Professionals Firms register. As solicitors you are allowed to give advice in financial services but that does not neglect the fact that you should be paying registration and pay the necessary FSA, FACS and FOS fees.

    Personally, I’d like to see the FSA do a full registered check against the SRA register to check whether solicitors are complying with the Exempt Professional Firms register and if they do offer financial advice without being on the register or do not have the appropriate introduces agreement with an IFA than they should be FINED and in the worst cases BANNED!

  13. I’ve never apologized for making a profit: after all, my clients don’t.

    I can sit at home and earn nothing, without having to go to work to lose money!

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