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Revealed: How advisers are really charging post-RDR

Experts are warning the FCA could intervene on adviser charging structures, as research reveals up to 90 per cent of firms are operating a percentage-based fee model.

Following another warning by FCA chief executive Martin Wheatley on contingent charging models, Money Marketing reveals how firms are really charging and how fee models are set to become a key battleground this year.

Research by Europe Economics published as part of the FCA’s post-RDR thematic review last month found the majority of advisers have a charging structure based on a percentage of funds invested, according to an analysis of 2013 retail mediation activities return data.

It found that for initial charges, between 86 per cent and 91 per cent of firms (depending on size) typically operate a charging structure based on a percentage of assets invested.

It also shows between 27 per cent and 55 per cent of firms typically offer an hourly charging structure, and between 39 and 67 per cent typically offer a fixed fee model.

The overlap reflects the fact many businesses use a variety of charging options.

While the data does not record the proportion of fee models which are contingent on a sale taking place, Europe Economics says a “large proportion” of charges work in this way.

It cites consumer research carried out in September by NMG Consulting, which found that of those who had considered an investment product but did not go on to purchase one, 72 per cent said they did not pay a fee.

EY senior adviser Malcolm Kerr says: “There is an obvious conflict of interest where the client only pays if they purchase a product.

“It is completely clear that a lot of advisers are not comfortable in selling pure advice for a pure fee and feel more comfortable wrapping it all up in a product.”

Kerr believes there will be a gradual “evolution” towards fixed fees.

But research from financial services research firm Investment Trends suggests few advisers plan to reduce their reliance on asset-based charging structures in the next few years.

Its Investment Trends Adviser Technology Report, based on a survey of 1,120 advisers, found the average advice firm derived 52 per cent of its revenue from asset-based advice fees in 2014, and 21 per cent of revenue from fixed or hourly advice charges.

By 2017, the average adviser expects the percentage of revenue from fixed or hourly charges to increase to 25 per cent.

But they also expect revenue from asset-based charges to rise to 56 per cent.

FCA concerns

The Consulting Consortium head of policy Rebecca Prestage says charging structures “took a back seat” for many advisers in the run up to the RDR.

She says: “We all know firms need to work out how much it costs them to run their service to calculate their fees, but some have just picked out random numbers.

“I think the FCA will start looking at this from a consumer point of view, and ask advisers to justify how their ongoing fees reflect the services they provide.

“The regulator is also concerned about cross subsidies. If a firm is doing initial interviews for free, then customers who take out a product are paying for that initial session for others. If you look at lawyers and accountants, you might get the first 15 minutes of the meeting free but if you spend a few hours with them you have to pay for it.”

TenetConnect and TenetSelect managing director Mike O’Brien adds: “While the FCA is not a price regulator, it does expect that fees for investment advice should be reasonable. It can and will act if it thinks fees are excessive.”

RGP Compliance managing director Simon Collins says he has challenged the firms he works with to justify their percentage-based ongoing charges.

“We have asked firms charging 1 per cent how much work have you actually done on this and can you back it up with time sheets?,” he says. “That is what a customer wants to see, and if the FCA looked at this I would expect them to do the same.”

While the regulator has dismissed the prospect of an outright ban on percentage charging, Wheatley has been warning on “dealing bias” since 2013, and reiterated those concerns in an exclusive interview with Money Marketing last week.

He said: “We want it to be clear what people are paying for, and that is the bit that is still unclear. Contingent charging is something we have raised questions about, and we have some questions about whether that is delivering what we think the answer is, that is, separating out the advisory part from the acquisition and purchase of the product.”

Independent regulatory consultant Richard Hobbs says: “The RDR has effectively allowed commission to continue and Wheatley is understandably fretting about that.

“There are two purposes to his public hand wringing: to set the mood music for his political overseers, and a forlorn hope that he will terrorise the market into developing remuneration structures he is more comfortable with.

“That is not going to happen because too many advisers feel their clients will not pay for advice upfront.”

Major players

Money Marketing contacted a number of major advice networks and national firms for details on their charging structures.

Chase de Vere, Towry, Tenet, Bellpenny and Personal Touch all said they provide the initial client meeting free of charge.

But with the exception of Tenet, these firms all said they would charge for a personal recommendation separately to a charge for any subsequent transaction. Tenet says its advisers do not always charge for recommendations separately.

Bellpenny, Chase de Vere and Tenet say the majority of their clients are charged on a percentage basis, while Towry charges clients on an hourly basis for financial advice and on a percentage basis for investment management.

Personal Touch advisers charge on an hourly basis. Marketing director David Carrington says the network provides a fee structure for its members to work within, which caps hourly charges at £300.

Customers are classified as standard, complex or hugely complex, and there are caps on the number of hours a piece of work can take for each category. Personal Touch also “sense checks” what hourly fees equate to as a percentage of funds invested.

“We knew this was a different approach to some of the more traditional product selling firms when we devised it,” says Carrington.

“Our advisers have no problems using hourly fees and I am pleased that we do things differently to the rest of the market.”

Sesame, Openwork, Positive Solutions and St James’s Place declined to give details of their fee models.

CWC Research managing director Clive Waller says most advisers find it difficult to charge on an hourly basis.

“To truly work on an hourly basis you have to not answer the phone when it rings, and advisers don’t work like that,” he says. “Advisers struggle to record time accurately.”

But Informed Choice executive director Nick Bamford says experienced advisers should be able to produce accurate time estimates.

He says: “We charge fixed fees based on a calculation of how long certain pieces of work take. Advisers should know this, and while the unexpected can happen I do not think that is a strong enough argument against hourly rates.”

New models?

So where could the market move to this year and beyond? Some have suggested that the Government’s pensions overhaul in April could prompt a greater shift to flat fees.

Collins says: “Post-April, a lot of people are going to need advice but they are not necessarily going to need a product, so it will be crucial that charging structures are clear.”

O’Brien adds: “As a consequence of the reforms, we expect more firms will charge an explicit and potentially flat fee for the initial personal recommendation, and a separate fee if they are asked to execute a transaction.”

Meanwhile some advisers are starting to produce an annual statement at the end of each year detailing to clients in pounds and pence all charges they have incurred, including platform and fund management charges.

Bamford says: “We do this for clients where they want it. It allows them to make a judgment about the value of our service, and see exactly how much they are paying.”

Others suggest the market will move to a model for ongoing fees which is based on a lower percentage “retainer”, and an additional fixed fee for any specific work carried out.

“I can see a situation where the client pays the adviser some kind of percentage fee just for being there, but when they need something done they pay an hourly or fixed fee,” says Kerr.

Chris Williams, chief executive of simplified advice business WealthHorizon, believes the core ongoing service proposition will be money management, with advice charged for as and when customers need it.

He says: “Some advice structures are a bit like a packaged bank account – you get charged 1 per cent for all these extra services you probably don’t need every year.”

Collins argues: “Where percentage charging could come under some tough scrutiny is ongoing services, as some firms are charging for a whole range of services which customers may not use. This is a value for money issue for the regulator: it has already looked at insurance add-ons and packaged bank accounts and this could be the next step.”

Adviser views

Milton

Philip Milton, managing director, Philip J Milton & Company

I am concerned that some of the old commission models have been carried over into the RDR. But there are some reasons why it is appropriate to charge higher value clients more; for instance, they carry greater liability risk in terms of potential complaints.

Hall-Dennis

Dennis Hall, managing director, Yellowtail Financial Planning

When you put an hourly rate in front of a customer it knocks their socks off, because they do not see advisers as in the same league as lawyers. A fixed fee might work for a pensions review but for full financial planning it is much harder to know how much work will be involved at the outset.

Who charges what?

Bellpenny

Hourly fee: £175

Percentage fees: 1-3 per cent initial charge, plus 0.5-1 per cent ongoing charge

Typical structure: Majority of clients choose a solely percentage-based fee, but a significant minority choose hourly charging

Are charges contingent? Initial meeting is free. A recommendation report is charged for separately to any transaction.

Chase de Vere

Hourly fee: £250 for advisers, £80 for administrators

Percentage fees: Up to 3 per cent initial charge, plus 1 per cent ongoing charge

Typical structure: Most clients are on a percentage fee

Are charges contingent?: Initial meeting is free. A recommendation report is charged for separately to any transaction.

Personal Touch

Hourly fee: £100-300

Percentage fees: Not used, but Personal Touch does ‘sense check’ fees on a percentage basis

Typical structure: Hourly fees

Are charges contingent?: Initial meeting is typically free. A recommendation report is charged for separately to any transaction.

Tenet

Hourly fee: £150

Percentage fee: Typically 3 per cent initial charge, plus 0.5 per cent ongoing. Charges must not exceed 4 per cent initial and 1 per cent ongoing.

Typical structure: An estimated 80-90 per cent of members charge on a percentage of fund basis and facilitate charges through providers.

Are charges contingent?: Initial meeting is typically free. A personal recommendation may be charged for separately to any resulting transaction, but not always.

Towry

Hourly fee: £200-300 for advisers, £85 for administrators

Percentage fee: For investment management services, initial fees are 1.5 per cent for portfolios up to £250,000, and 1 per cent for portfolios over £250,000. Ongoing fees are 2 per cent for the first £200,000, 1.15 per cent for the next £300,000, 0.9 per cent for the next £500,000 and 0.75 per cent thereafter.

Typical charging structure: Hourly fees for financial advice, percentage fees for investment management services

Are charges contingent?: Initial meeting is free. A recommendation report is charged for separately at £1,500.

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Comments

There are 40 comments at the moment, we would love to hear your opinion too.

  1. Independent regulatory consultant Richard Hobbs says: “The RDR has effectively allowed commission to continue and Wheatley is understandably fretting about that.

    If it really is a concern, Mr Wheatley, then perhaps looking into SJP’s structure first before going after the little guy would show us you have a backbone!

  2. The discussion regarding charges is very complex and it fails to take into account one thing. Clients are very different, their expectations are different. It can be very difficult to get them to agree to one particular charging method. One factor to counter into charges is the initial interview or indeed an ongoing conversation. My wife may spend two hours on the phone talking to a client establishing changes in their circumstances or, and this often happens, their attitude to investments. This may because they have talked to a friend, read a newspaper article or seen how someone has made a great profit on rented accommodation. How do you charge for this? It is vital information but very difficult to get the client to pay for.
    Some fundamentals. Fixed fees are a cross subsidy and worse still a temptation to rush the job. Not wrong but flawed. Percentage based fees – commission by another name and if not linked to timesheets hard to convince the regulator or the customer that they are fair. Initial meetings are not free – someone pays. But above all, some clients can be very “awkward” and I fear that the regulator does not always appreciate that fact! In the latter circumstances, it can be very difficult to give an estimate for a “defined” piece of advice and experienced advisers are very wary of this.
    There is no right or wrong solution but I would expect advisers to record the time they work on behalf of clients – in fact all their time as this is basic fundamental business practice in order to establish your true costs.

  3. If I could avoid it, I would never pay anyone an hourly rate. Hourly rates above: Chase de Vere £250 per hour, Tenet £150 per hour. If it takes a Chase de Vere adviser 2 hours to do some work and it takes the Tenet adviser 4 hours to do the same work then it is cheaper to go with Chase de Vere. And how do you work out what constitutes work for a particular client and what constitutes work in general that could be applied to more than one client? Any adviser that offers an hourly rate would immediately strike me as suspicious. I wouldn’t trust them. And if this charging structure is supposed to improve trust in the financial services industry, think again!

  4. Perhaps MAS and CAB can do a better job, free of charge, after they have grappled with Pension Wise? An ad valorem fee is not the same as commission which is contingent upon the service provider dictating the payment, not the client. To conflate the two is disingenuous or just plain stupid.

  5. I see nothing wrong with giving an initial consultation free (or at my cost). I do not consider this a cross subsidy as all new clients are offered this.
    We also do some Pro Bono work. Is this a cross subsidy?
    From the regulators stance it would seem so as we could not afford to do Pro Bono work unless we were earning fees elsewhere.
    I would not be happy if a solicitor or accountant charged me the minute I went in the door without explaining their services & charges first.
    What next Sainsburys charging you for walking into a supermarket!
    We are a commercial organisation offering a professional service and we are in business to make a profit. If our charges are unreasonable our clients would leave. How we charge should be up to us not the regulator.

  6. “The regulator is also concerned about cross subsidies. If a firm is doing initial interviews for free, then customers who take out a product are paying for that initial session for others.”

    Really joined up thinking here!

    To be on the MAS panel of regulated advisers you have to commit to providing the first hour of any first meeting with a client for free/ no charge.

    Please explain to me how I am to mange this cost in my business plan?

  7. I cannot believe we are still having this discussion.

    A. We are private businesses and as such our charging structure is our business, so long as it is fully disclosed, clear and transparent and the client agrees to it.

    B. We have different cost bases, service levels, etc, etc so that has to be taken into account as with any business.

    C. Everyone from surveyors, to architects, to lawyers charge %fees. Why are we different?

  8. It looks to me like it just creates more work and additional record keeping and as such increases the fee the client has to pay to justify the increased time their adviser spends recording every call, letter, transaction, meeting, email in & out, research, etc etc…

    What you charge for a particular product both initial or ongoing may not be reflective of that particular advice, you may also be providing tax advice, help completing other annual documents, advising on Pension Bonds, best rates for deposits, annual review meetings… the list could go on and I suspect all good advisers retain their clients because they are flexible and fair with their charges and their clients appreciate the value they get, if they didn’t they would walk!

    Too much tampering and decision making over many years by those who do not work at the coal face has lead to spiralling debt and a lack of savings. Not surprisingly we have about 5% of advisers now than were registered about 30 years ago… Is it not clear yet… we have to few advisers to help educate and help the public to manage their finances correctly and the industry and media should be encouraging not discouraging the public with all it’s negative press!

  9. Percentage fees are the only fair way to charge for running money. I spend hundreds of hours a year on fund research and portfolio building. Charging a percentage means that those who benefit the most pay the most whilst a service is still accessible to the less wealthy. Anyhow, carry on meddling FCA. There’ll come a point when those of us who create jobs and wealth and who deliver a service the country needs us to deliver just say “#*@$ It!” and shut up shop. Despite the FCA’s endless self-serving surveys and consultations, the public don’t actually want what they are delivering because the reality is that it has made a large segment of the population economically unadvisable.

  10. I think a survey should be conducted on the public about the FCA as regulator, their fees, the office and its overheads and the work that they do that represents real value to the public.

    FCA continue to create and make up things to justify their existence and these increased costs end up being paid for by the adviser and unfortunately it is then passed on to the client…

  11. I do not think the FCA should be so concerned about advice charges, they should focus on regulating products and how they are delivered. The cost of advice is separate from the cost of products. It is the opaque costs of fund management and product charging that now needs to be focussed on. And to be fair to the regulator a lot of very good work has been done on addressing product and fund charging structures. The cost of taking advice from an adviser firm is determined and set by that firm. As long as things are clearly explained, disclosed and agreed then surely it is the business of the firm as to what they charge. If they charge too much for the work they are doing, then clients will go somewhere that offers more for the same fee, or charges less for the same work. Now that initial charges have been all but abolished it should be much easier for clients to change adviser without having to incur product penalties or charges for doing so. Competition is likely to do a far better job than regulation here. As Sam Caunt says, different clients are comfortable with different types of adviser charging. And unless you only charge for the hours of work carried out then there will ALWAYS be cross-subsidy from one client to another in respect of advice. And if you charge by the hour, the client may still pay more than another client if the adviser is less efficient at doing one piece of work than another. For advice we offer hourly charging, flat fees or percentage based charging. We offer invoiced fees or alternatively we offer facilitated charging where relevant and available. The vast majority of clients where advice leads to a product or investment management service choose percentage based fees, and choose facilitated adviser charging. Regulatory interference is not needed, although publicising the different forms of adviser charging available is something the FCA could and should highlight. However, what they should not do is comment on whether a particular form of advice charging is good or bad. By all means educate clients with the pros and cons of different charging structures but it is not their business to say what is GOOD and what is BAD. They have amply demonstrated an inability to understand what clients want, and should not be riding on their high horses to assume their opinions are views are the right ones. Let the client decide Martin.

  12. Money Guidance CIC 15th January 2015 at 10:31 am

    I have sold two businesses and three houses over the last ten years and, on each occasion, different lawyers have quoted a “price for the job”. This represents a rational commercial judgment on the part of the client and I would not have expected to start interrogating time sheets.
    Malcolm Kerr incorrectly states: “It is completely clear that a lot of advisers are not comfortable in selling pure advice for a pure fee and feel more comfortable wrapping it all up in a product.” – I think he will find that a lot of advisers are entirely comfortable with hourly rates: it is the consumers of our services who dislike this approach and, as commercial entities, we adapt our business propositions accordingly. Dare I suggest that EY clients may not be a representative sample of those needing help.

    By focussing on this issue, the regulator is actually constraining the market for financial services. Only yesterday, I attempted to provide generic guidance to a 34 year old who wanted to start a pension at £1,800 per month and then steered him towards execution-only sites. The reason? – he offered to pay me a £150 fee to help him pick the funds once his risk profile and asset allocation had been unilaterally established. He could not understand that there would be a minimum £1,000 fee to take on a new client once fact find/affordability/suitability/AML/risk profiling/loss capacity/cash flow criteria had been factored into the work. He was aghast, while I was unable to defend the system.
    So long as consumer choice remains binary – i.e. DIY or pay for a planner – then the regulator will have presided over an environment in which no middle ground exists and the majority of UK consumers will be left to get things wrong on their own. Hey, but at least we`ll all be compliant.

  13. I have worked with timesheets in a previous role and it dies not work as clients are more likely to feel they are being overcharged as they don’t see the ongoing and background work even though we explained it went on. Eventually we moved to percentages of AUM and all the moaning stopped overnight.

    Clients like clarity so the percentage does work as part of a charging structure. I know lawyers and accountants that work on a similar basis. I can understand the argument about percentages being a condition of a sale and the free initial meeting bridges many problem in this area. Often beyond that we charge a flat single fee/retainers for other works like reports or investment reviews. However if the clients want work completing beyond that then the signed fee agreement covers it all. Whether it covers all the FCA want I dont know but the clients understand it – and surely that is what we are about?

    Lets face facts understanding regulation and being 100% compliant 100% of the time is like trying to catch a moving bus that never stops. The research and debate proves the point. Whatever happened to the clients needs/wishes and our responsibilities as advisers.

  14. The FCA would do better to read the comments above (and in similar discussions of the topic) than its expensive consultancy reports to get worthwhile insight into what’s really fair, sensible and works.
    This one has me fizzing mad even though I’m not and never have been adviser. And seeing what’s involved, I’m still not tempted.

    As well as the many important points above, I’d like to add:
    1. The fundamental assumption that cross-subsidy is bad is a flawed one. Not only is it a pragmatic smoother of the complex calculation that involves precise allocation of costs and in reality a significant component of pricing in almost every walk of life. But also in the context of financial services it’s an important smoother of the path to getting more people’s finances healthy. An attempt to eliminate cross-subsidy can only further benefit the rich to the detriment of the less wealthy whose need for financial advice is more pressing.

    2. If Mr Wheatley is worried about cross-subsidies, he would do well first to look at those underlying the FCA’s funding model.

  15. Re hourly charging. Let’s say client A comes to see me in February and has a really complex set up requiring 20 hours work and research etc. I charge him accordingly.

    In March a new client comes along with virtually identical services. I only need to spend a couple of hours on this, earn significantly less for the same PI risk and client A has subsidised his advice.

    Is that fair, or even remotely sensible?

  16. Here we go again. So called experts trying to tell thousands of business owners and others that the only way to do it properly is to do it the experts way.

    A New Year message to the experts “Please just naff off and keep your opinions on how we should run our businesses to yourselves.”

    On another matter re justification of charges. No one has to justify their charges to anybody – FACT. We all charge what we charge. As long as the client is happy to pay our charge, then that is all that matters.

  17. Christopher Petrie 15th January 2015 at 11:21 am

    I too am amazed this topic is still being discussed. RDR is now over 2 years old, and people are just trying to get on with their job.

    Here’s just a few professions/organisations that charge % based fees, off the top of my head:

    Fund Managers
    Probate Lawyers
    Estate Agents
    Specialist Tax Accountants
    Home rental Agents
    FCA
    FSCS
    Some architects
    IFAs

    And there are no doubt many, many more.

    Frankly, this is a non-issue. The only person who can decide if they like to pay in this manner is the client. Not random “Consultants”. Or industry “experts” with vested interests. Or a regulator. Or even IFAs themselves. The customer is king and will/won’t agree to any particular payment method.

  18. What a load of cobblers!

    If I go out and buy a new house I would expect the builder to make more profit on a larger house than a smaller one. The same goes for vendors of cars, watches, pieces of paper, books, meals, phones, care services, photocopier contracts – virtually everything.

    Scenario 1: Existing client with £500,000 invested wants to take up his annual ISA allowance, as he habitually does, investing just £15,000 this year. We say ‘Thank you very much, that’ll be £1,500’. He says ‘Get Stuffed’.

    Scenario 2: Existing client with £500,000 invested wants to take up his annual ISA allowance, as he habitually does, investing just £15,000 this year. We say ‘Thank you very much, that’ll be 3%’. He says ‘I’m happy with that’. He’s effectively cross-subsidised his own charges and goes away satisfied.

    Nothing wrong with commission!

  19. We offer clients 3 options:

    1) Fixed Fee
    2) Hourly Rate
    3) A % of the investment

    99% of the clients chose the latter, however the % rate we charge depends on the amount being invested and the complexity of the work and is agreed with the client in advance.

    Isn’t it hypocritical of the FCA to moan about % based fees when the fees the industry pays are based on in effect % based too?

  20. The key point made here is that the FCA has ruled out banning percentage based charging models, apparently. That means most of the industry will carry on using them, and will survive as the business model is not much different to the old commission based system. That’s all well and good, but what was RDR actually all about then? The vast costs have been in the main passed onto clients one way or another.

    Everybody supports the increased qualification requirements, but this is the time to set a date for Level 6 to become mandatory. I doubt that will happen, and the ‘commission by another name’ system will continue. Will the FCA now accept that RDR has been a colossal non event?

  21. Incompetent Regulators 15th January 2015 at 11:50 am

    The day IFAs are not allowed to charge for percentages is the day the likely of Wheatley doing his job for £20,000 per annum. Who’s going to pay for his big fat salary?

  22. As a few have alluded to it seems only fair that when the regulator switches it’s charging model to a time based structure, then they could expect IFA’s to follow thier example……

    Should be interesting.

  23. @Quietly resigned – I have to disagree that now is the time to set a date for level 6 to become mandatory. Why send a man on a boy’s errand? There are a very large number of unsophisticated financial issues which require very good soft skills but only basic financial knowledge to deliver an excellent service and solution to clients. So to build in a mandatory level 6 qualification merely creates a closed shop where there would be hardly any regulated advisers left and further inflation of the cost of advice. I also have to disagree with your assertion that RDR has been a colossal non-event. It is a major catastrophe rather than a non-event, it has led to the masses being far less able to gain access to financial advice, whilst those who can afford to pay have had their payment options reduced and have had to endure yet more educationally useless explanation of documents. It has led to £millions being spent by firms trying to ensure understanding and compliance with RDR, on top of existing compliance costs before RDR. I think we have a regulator who pokes their nose into advice in places where the market and competition can lead to self-regulation and who does not turn enough attention to curbing things that should be changed such as product charges, hidden fund management charges and costs, and product design. RDR has led to considerable improvements in the product side of things, so it is not all bad news, but it has not improved the trust clients place in our advice services (trust is based on the relationship between the client and the adviser and is not dictated by regulation) and it has definitely led to higher costs of advice and a reduced choice for how to pay for it. I guess it is easier for the FCA to try and change advisers rather than to get providers and manufacturers to make the right products.

  24. The Kent PFS seminar was last week and Rory Percival was at it. They categorically said the do NOT have a problem with % based fees, it is simply a matter of making sure the fees are quoted in a monetary form as well, are then clear, fair and not misleading.
    We sense check our fees against the time spent on the client, we don’t charge hourly rates, having a mixture of flat retainder, fixed fee for taking on a new client, % based research and advice fee, % based implementation fee and % based FUM fee, which we adjust DOWN for larger cases, but on a case by case basis as the amount of work varies from client to client as does the amount of “hand holding”.
    This article is more about “experts” justifying their existence and fees than the FCA having concerns about advisers I suspect.
    Fear sells compliance. Don’t be afraid and don’t be very afraid. If you think you are right and the FCA is wrong, say so and challenge them. I did with Rory Percival over SJPs charging and then having looked in to their ongoing fees, it does say they will turn off ongoing fees at the clients request if a non SJP adviser is appointed, so that is why the FCA can’t do anything about the fact that many advisers think SJPs charging structure is not in the spirit of RDR even if it is within the rules.

  25. I don’t really care what anyone thinks other than my clients! After all, they pay for all of the fleas on my back when all said and done and some appreciation of that would not go amiss.

    It’s easy to be critical of the source that feeds all of us, but be careful what you wish for!!

    Run an advisory firm under RDR and then talk with some authority about what things can and do work; as for the views of compliance consultants, I refer to my first paragraph!

  26. ISLAM is being condemned for trying to impose their ideology in the world. There seems to me to be a very big danger in the regulator getting involved in pricing.

    The only way is for the regulator to set an hourly rate, minimum and maximum charge and how it is to be charged and collected. We will then all close down and retire.

    Sorry I thought I lived in a domiciliary, clearly the future does not seem to hold this.

    It is my business, my liability, my advice and I will charge for it clearly, in £&P, percentage, fixed fees as I see fit. If this not acceptable, make us all employed, pay us a salary, gold plated pension and see how many of use wish to remain in the industry.

    It is down to the consumer to make their mind up if they wish to use my services and pay the charges I request. They currently have that choice.

  27. I thought RDR sought to remove commission from being part of the product so that first, advisers would not be partial to a provider who paid more than another, secondly the commission would not come out of the cost of the product itself, thirdly the commission within the product would not impact on investment returns and fourthly it would be clear to the client as to exactly what charge was being made in a transparent way.

    I never remember anyone saying anything about how much the actual charge should be, just that it should be made clear to a client in pounds, shillings and pence (to clarify percentage charging) before the point of sale and that the client be given different options of paying and the method of payment.

    In other words the client is able to make an informed decision before any sale takes place and that if they feel the charge is too high for the service being given, they are able to shop around.

    Until now that is.

    If we are now talking about levels of charging, my belief is that it should be left to market forces and competitors to adjust their rates accordingly; it should not be down to the state to decide.

  28. Incompetent Regulators 15th January 2015 at 1:56 pm

    If hourly based fees were compulsory Hargreaves Lansdowne’s share would fall off a cliff. As they take percentages and do nothing much!

  29. @ Martin Evans

    “There seems to me to be a very big danger in the regulator getting involved in pricing”

    Sorry old mate, they already do ! have they not fixed the max charge rate on short term loan companies (Wonga etc etc etc ) ?

    Our regulators immunity (according to treasury sources) is sacrosanct, so they can do what the bloody hell they like or what government tell them to do ?

    The only consideration they have to make is self preservation, they chop of the hand that feeds they go hungry !! but then; when has that ever stopped a lunatic ?

  30. @Jonno

    Sorry to pick you up on your example but if you had said to the client investing £15,000.00 “I am going to charge you 10% (£1,500.00) then I would expect him to say get stuffed too.

    3% = £450.00 and can be easily justified for the work to add another £15k to an existing investment platform/ portfolio.

    IMHO of course. J

  31. Having been involved in the transition to fees following the introduction of RDR, we have never had anyone ask for pure advice and want to pay a pure fee for this advice. The utopia the regulator seeks is sadly not there and the advice gap will become a chasm if they continue down this path.

    Since RDR, despite offering fixed fees/hourly rates & %age charging the clients always opt for the %age charging basis both for initial and ongoing servicing.

    I know the working class arena we operate in will not seek advice due to the fixed fees/hourly rates required for any scale of work whether it is a simple ISA or anything more complex.

    Should this %age fee method be removed I have no doubt there will be a mass exodus of advisers from the industry predominanly in the working class markets as they can no longer afford to operate due to the high operational costs and the regulatory burden.

    We as a firm would be one of them!

  32. Possibly a method in the madness of the regulator and a long time fear of mine is that the demise of the IFA is exactly what they want… Why, the FCA, FSA, FIMBRA, etc has been controlled for a long time mainly by ex bankers and if we are non-existent who gets all the clients?

  33. @ Victor M – not quite sure that FIMBRA was all bankers, but other than that I would have agreed with the thrust of your point…..other than that nowadys, there’s precious few direct sales firms left to hoover up anything!

  34. Given all the comments on here it always makes me think about the regulators and do they actually ever question their direction and even knowledge of the public and marketplace at large.

    Just like these surveys which concludes xyz – I find myself asking how did they come to that conclusion? I have never met anybody who asked my opinion or any of my clients or colleagues opinions is 25 years as an IFA. Where do they get these survey results and opinions from??

    I feel that 20 years from now we will look back and point to this period and say that was the low point in regulation and that is where we went wrong.

    Don’t get me wrong there is lots I like about regulation and RDR as it has been good for our small practice – by reducing competition ironically (except the spiraling costs that my clients are paying for). However there is lots that is borderline lunacy and in their pursuit of utopia the poor public are lost and confused. Hence I do see the advice gap and it is getting wider – regardless of the fact that those with powers are blind to this issue. Afterall how do you measure something that is not there and cannot be seen?

    I do feel for the clients we turn away as we have had to lose the cross subsidy although we still run the free initial consultation – but that is very generic and no opinion are ever given. The like of MAS (and pension guidance) cannot help them as our initials fees are too expensive so they are effectively abandoned to the ‘system’. This means they will continue to make poor decisionsor worse no decision at all.

    I am sure that the stats will say the savings rates have gone up by fudging the AE rates but the family man who needs life cover, or the pension fund taking high charges, or the poorly performing investments – the list is endless, these people are all lost until we have a reduced regulatory burden and costs.

  35. @Gregheath totally agree with every single one of your points in your last post – the thrust of RDR was to improve access to, trust in and quality of financial advice to the general public. Fully agree with you that whilst it has helped differentiate quality businesses from the less good the impact on accessibility of advice for those who really need it has been the reverse of what was intended.

  36. We, like many others on here i suspect, do not work exclusively with high net worth clients and we are always looking to find new clients. A lot of these new clients are referred by existing clients and have no experience of financial advice.

    Recently we had a new client baulk at our initial fee (initial % and ongoing %) when put to him in £’s and pence. This led to him going away and looking into the DIY route, to cut a long story short he was going to DIY an annuity rather than my recommendation of drawdown because of the fee. We negotiated and settled on a lower initial fee. As with other clients we have negotiated on our initial fee if they aren’t happy.

    As with many others out standard model is an initial % and an ongoing %. I think the most important thing is that we relay the %’s in pounds & pence and point out that any ongoing % can be stopped if and when the client decides we aren’t earning it. It is always the clients choice to pay our charges or not.

    What more does the regulator want?

  37. Just had a new enquiry through find an adviser for a client with a 100k pension pot, needs advice on all the new rules etc to decide on the best option. The question of charges came up, percentage, fixed and hourly were listed as options, at the end of the day they all came to around 1k, I also mentioned that an hour of my time is worth three with a less experienced adviser as I can think quicker and save them time.

    An appointment to see me was booked the next morning.

  38. @HH – I couldn’t agree more. We need a level playing field and if all IFAs went to hourly-based charging when SJP stay on % then more assets will shift to them. The FCA is supposed to look at the consumer impact and a huge, FTSE100, national network like SJP has a much bigger impact than most of the smaller IFAs in the country.

  39. Paul W – I think you’ll find most ‘smaller IFAs’ are still charging a %ge, one way or another!

    Also if all IFAs went onto an hourly-based charge, SJP wouldn’t get more of the business as the IFAs would be effectively capping their charges whereas SJP’s are open-ended. It would however result in IFAs not being paid properly for the risk they take on for accepting larger cases, and no-one would be servicing the little guy as smaller investments wouldn’t pay. Is that what RDR was designed for?

  40. Double standards again FCA have no problem charging the industry on a percentage basis which does not reflect the work they carry out.

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