The largest advice firms in the UK have broadly failed to come clean on what they charge for advice and the service they deliver for those charges.
Last week, St James’s Place pledged to publish its pension and bond charges online for the first time following widespread criticism over the transparency of its fees.
But analysis by Candid Financial Advice shows there is further to go on cost disclosure after it found only four of the 60 largest advice firms in the UK give any indication of their charges online.
This lack of transparency has been borne out by separate research by Money Marketing, with less than half of the firms approached providing clear details of their charging structures.
In the second of our series of articles on advice charges and pay, we examine the firms prepared to discuss their charges, those that are not, and what this says about the advice profession.
Based on data from the FCA register and compiled by Threesixty, Money Marketing approached the largest 19 advice firms in the country by CF30 qualified individuals and asked for the following information for 2014, 2015 and 2016 respectively: Details of maximum and minimum initial and ongoing advice charges, the services provided for these costs and any other fees for additional or specialist work such as pension transfer reports. Firms were given two weeks to respond. As Money Marketing went to press, just seven of the firms had provided responses. Eight did not respond, and four declined to comment.
Openwork, which has a core network of restricted advisers, but also a protection business and an IFA arm, 2plan, said it did not centralise charges, so was not in a position to provide answers.
Only one firm, True Potential, specifically separated out its charges for 2014, 2015 and 2016.
None of the firms that responded said they had reduced their charges since 2014.
Financial Inclusion Centre director Mick McAteer says the apparent lack of transparency over charges will reflect badly on the advice profession.
He says: “It’s pretty disappointing if they are not willing to be transparent. It’s difficult to see how any organisation can use commercial confidentiality for not disclosing their fees. I can’t see any reasonable argument on that basis.
“If the industry and advisers make it look as if they are going to deflect this, it’s going to reflect pretty badly on the sector.”
Informed Choice managing director Martin Bamford says there are gains to be had from making charges public because prospective clients will find it easier to engage with the adviser.
Bamford says: “I’m a huge fan of fee transparency and believe it’s an important part of making our profession better trusted with consumers. Those that choose to go public with fee details, and that includes Informed Choice, are likely to make it easier for prospective clients to engage.”
Penguin Wealth is updating its website to improve charges transparency. Managing partner Craig Palfrey says while firms should be transparent about charges, they should also do more to communicate what financial planning services will be offered to clients and why these are valuable.
Palfrey says: “Firms should be able to tell you their charges, they should be on their website. I’m loath to do it though, as I don’t want people to
be put off if there is a planning fee.
“Say the guy down the street offers advice for 3 per cent, but he might have done a full financial plan as part of that fee and shown what all their rules are.”
What is on offer?
Some firms did attempt to provide answers to Money Marketing’s questions.
For example, a Tenet spokeswoman says: “Maximum initial charges vary depending on things such as the complexity of the advice and amounts to be invested and the geographical location of the member firm.”
She adds these would be in the range of 3 to 4 per cent, or £100 to £400 when charging by the hour.
Its minimum initial percentage fee can fall as low as 0.25 per cent, or £50 to £250 per hour. Typical maximum ongoing charges are 1 per cent, which would include a review meeting twice a year, statements and performance reports twice a year, cashflow analysis reports twice a year and online access for portfolio valuations.
Pension transfers will typically cost clients an extra £150 an hour, not contingent on the transfer going ahead in most cases, all of which has remained “broadly the same” bet-ween 2014 and 2016.
True Potential says its maximum initial charge has been 4 per cent for the last few years, although the average client pays 0.83 per cent. Maximum ongoing charges were 1 per cent, but averaged out at 0.57 per cent, with no additional fees or mandated charges for the firm’s advisers.
Chase de Vere charges up to 3 per cent for initial advice, with a standard annual fee of 1 per cent.
Chase de Vere head of communications Patrick Connolly says he was wary of the firm’s charges being compared with other large advice businesses because propositions can differ significantly.
He says: “If you’re looking at the largest advice firms, most of these will be restricted. This means as well as charging advice fees they may also be earning revenue from selling their own (often expensive) products, funds or platforms.
“This isn’t the case with Chase de Vere. We are independent and we don’t have our own products, funds or platforms. I am wary of direct comparisons with other advice firms solely on advice charges because of this.”
Old Mutual Wealth does not insist its Intrinsic advisers charge in a particular way, but says cases can be reviewed by the network to ensure the fees were justified.
An Intrinsic spokesman says: “The network does not prescribe charges to either independent or restricted advisers and our focus is on ensuring advisers operate in a framework that allows them to focus on delivering good customer outcomes. Advisers within the network are appointed representatives of Intrinsic and it is important they have the freedom and flexibility to run their business as they wish, setting charging structures that suit their clients and target market.”
It’s difficult to see how any organisation can use commercial confidentiality for not disclosing their fees
Prudential Financial Planning’s charges have been the same across 2015 and 2016: no minimums or maximums for initial advice, but a sliding scale on initial charges from 3.5 per cent to 1 per cent.
Ongoing charges of 0.9 per cent to 0.3 per cent for funds up to £499,999 entitle the client to a regular review with a qualified adviser, an annual report, ongoing access to their adviser and regular communications on key financial matters.
The firm does set a “decency limit” on the amount of ongoing charges it can levy on portfolios above that level. Prudential adds: “We charge up to £600 including VAT for a pension transfer report. We charge £420 including VAT for advice around pension funds withdrawals that do not result in a product sale.
“We will consider variances to our charges on a case-by-case concessionary basis.”
Brewin Dolphin says it charges maximum initial fees of 2 per cent for financial planning, and a maximum of 1 per cent ongoing, which breaks down as 0.5 per cent for the financial planning service, plus 0.5 per cent for investment selection made by the financial planner.
Brewin Dolphin offers cashflow modelling as a standalone service for £1,995 plus VAT as part of a service introduced last year. These fees can be waived if Brewin Dolphin receives other fees from the client.
The SJP stance
One of the firms not to respond was SJP. Its 3,359 CF30s make it the largest firm in the sample.
While it previously published its unit trust pricing – 5 per cent upfront – on its website, when SJP announced it would now publish pension figures, chief executive David Bellamy said his firm has “said many times our industry can do better in terms of making these things more transparent”.
Bellamy said “all clients get this information before they do business with us”, but some argue only revealing charges at the point of sale means clients cannot take advantage of transparency to find the best- value deal for them.
McAteer says: “People should be told from the very beginning of the search process, starting off the process for getting an IFA with full transparency upfront. We know from experience once they are into the process not many people stop and go somewhere else.”
Apfa director general Chris Hannant acknowledges while there are many advantages to upfront fee disclosure, it is not mandated by regulatory rules and firms may want to discuss the complexities of an individual case in person before giving people an idea of what they might pay.
Hannant says: “Obviously transparency is important, you have to agree a fee with a client, and it allows firms to say what we are going to charge and what they might expect from a firm.
“But some people might take the view it might be a bit complicated, and might be best to explain it in person.
“My gut feeling though is people like to know what they are getting into in advance.
“Speaking from a personal perspective, when I buy something online it’s likely I search the website and do a bit of research to find out what price to expect and condition yourself to know what good value is.”
Ready to regulate
The signals from the FCA and the Government point to an increased focus on cost transparency over the coming year, including the “all-in” fee proposed in the FCA’s recent asset management study.
On the issue of adviser charging disclosure, an FCA spokeswoman says: “Advisers should provide clients with clear, upfront information on their charging structure for any initial advice and ongoing charges. This includes giving examples in cash terms to show how charges will apply in practice. In addition to paying for advice directly, customers can choose to facilitate charges via their product provider, if this option is available.
“The FCA has looked at how firms disclose advice charges as part of its supervisory work and keeps this under review.”
Hannant argues against making full disclosure of charges to prospective clients mandatory.
He says: “People will adopt different strategies, then the market will decide, clients will think about what they value the most.”
Bamford agrees. He says: “If a firm chooses not to go public with their fees, that doesn’t necessarily mean their fees are too high. It could mean they want the opportunity to describe on a one-to-one basis how they can add value, rather than issue a generic guide and hope prospective clients can apply this to their own personal circumstances. A failure to publish fees might then represent the need to improve communication about adviser proposition and where value for money is delivered.”
This is the second in a series of features on adviser charging by Money Marketing. To read the first piece, on how advisers are proving their charges are value for money, click here
Expert view: Robin Powell
With the possible exception of investor behaviour, the single biggest determinant of an investor’s net returns is how much he or she pays to invest. Almost invariably, the less you pay, the more you keep for yourself when you come to retire.
Thankfully, at long last, the FCA’s interim report on competition in asset management has shone a light on the very substantial costs entailed in using actively managed funds, especially when you include additional fees and charges that are often hidden from end investors.
Unfortunately, however, as this Money Marketing research confirms, there are also serious issues with transparency around fees charged by advisers.
Although investors often feel reassured by using a larger firm, larger firms can be more sneaky with their fees than smaller ones.
I firmly believe a good adviser adds significant value — not just by helping a client to work out their goals and devising a suitable investment plan, but also through ongoing behavioural coaching. That said, you can easily wipe out the benefits of having an adviser by paying too much for one.
Investors should be especially wary of paying large initial charges. They should also check any ongoing charges are fully inclusive and, if they are not, exactly what they will have to pay for any additional work.
Increasingly advice firms are offering fixed-fee pricing structures, as opposed to ad valorem models. Although many investors baulk at paying fixed fees, they usually work out cheaper than ad valorem ones, especially for those which large sums of money to invest.
Robin Powell is a journalist and broadcaster and blogs as The Evidence-Based Investor