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Transparency will ‘force down’ adviser fees

Magnifying-Glass-And-Text-Kindle-Contract-700x450.jpgCosts transparency will eventually force advisers to lower what they can charge clients overall, to 1.5 per cent a year, according to Lang Cat principal Mark Polson.

Polson believes regulations such as Mifid II will steadily increase pressure on advisers and make it harder for them to justify fees above 1.5 per cent.

Speaking at an event this month run by Seven Investment Management, he argued the same constraint would also shape the charges asset managers could levy on consumers.

In his definition of price, Polson included the cost of portfolio transactions, the ongoing adviser charge and the wrapper the portfolio is held on.

He went on to explain the consequences for the wider industry of having more comprehensive information about charges.

He said: “We are constructing sol­utions where, if we [as an industry] could start again, we would not be doing what we are now.

Research the Lang Cat has done demonstrates there is no link between price and quality when it comes to charges.

“Many firms do not know what they’re charging clients. If a sustainable annual withdrawal rate is 3 per cent and your charge is 2.25 per cent on top of inf­lation, you will get into trouble.”



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There are 10 comments at the moment, we would love to hear your opinion too.

  1. Wise words from Mr Polson.

  2. Why would transparency alter prices that are value for money?

    John Ruskin – “It’s unwise to pay too much, but it’s worse to pay too little. Whenyou pay too much, you lose a little money – that’s all. When you paytoo little, you sometimes lose everything, because the thing you
    bought was incapable of doing the thing it was bought to do.

    The common law of business balance prohibits paying a little and getting a lot – it can’t be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will
    have enough to pay for something better.”

  3. Nicholas Pleasure 14th February 2018 at 3:59 pm

    The article isn’t clear whether the 1.5% is a total charge (platform, fund, adviser etc) or just the adviser charge. I think any adviser charging 1.5% is pushing it somewhat, unless it’s on very small investments.

    On the other hand, my firm is just about to put up its ongoing charges. We’ve tried to hold them low but the new MiFid suitability requirements mean that our ongoing service is no longer sustainable.

    To be clear, we were reviewing clients properly, checking their products, making changes where needed, sorting out their CGT and ISA, checking ATR and generally earning our fee. We just didn’t need to write 4 pages of waffle about it.

    The clients don’t want a suitability report each year; they certainly haven’t been asking for it but they are going to get one and they will pay handsomely for it too.

  4. 1.5%!! Gosh I charged a max of 0.5% reducing for larger portfolios down to a minimum of 0.3% And I didn’t have to charge VAT.

    In fairness with all the extra compliance today I guess that those prices would have to be increased a tad. But I was always in line with John Lewis – “never knowingly undersold”.

    For those in the VAT trap 1.5% + Vat equates to a huge 1.8%

    Small is beautiful – and much cheaper.

  5. It’s all in. Adviser, platform and fund fees (and DFM if applicable).

  6. Perhaps it would be wise to take a look back at the history of transparency. In most cases driven by regulation prices have increased. Perhaps Mr Polson would suggest that this time it’s different. Thirty-five years of experience tells me it’s not very likely.

    Like it or not, the fact is that 85-90% of clients are not price sensitive. Those that do take notice will tend to do their own thing or be overly demanding – advisers know which ones I’m talking about.

    Those that just want help will have to pay for it and the market will determine that. Sadly, regulation has skewed the market by making advice more complex to produce and reducing the number of advisers, both of which push up prices. But of course, politically, that could never be acknowledged.

    We should all be thanking the FSA/FCA, apart from a few relatively minor niggles they have created an advisers paradise, an abundance of business and little price competition.

  7. Someone can always do something cheaper. There’s always the danger that one focuses too much on costs and less on value and quality.
    I don’t deal with clients on the basis of cost alone. I am sure most Advisers are the same.

  8. Trevor Harrington 15th February 2018 at 9:36 am

    I think what Michael Klimes is referring to is two fold.

    1) the entire annual fee that the adviser and the platform is taking from the clients funds … and
    2) the fund manager entire annual fee that they are taking from the funds, including transactional fees.

    It is quite obvious that these are both areas of fee charging which have been abused for many years.

    The result is that, I think I am right in saying that come this May, all Advisers will have to report to their individual clients their total year fee, commission, charge take in £££ on that individual client’s financial affairs ….

    This means two things will happen –
    1) clients will for the first time be able to weigh up their total fee to their adviser against the service which has been given …. and many clients will be in for a shock …
    2) Many clients will be looking for a new adviser …

    • Many clients will be looking for a new adviser…

      And finding that they’re paying the going rate and if they want ‘cheap’ they have to do it themselves. The alternative is finding an adviser that’s not in the business of making money or one that can’t get clients any other way…

      The market ultimately sets prices. Regulation has had the biggest impact on the market by increasing the base costs and restricting the supply of advice. Prices are going up, not falling.

  9. “It is quite obvioius………….abused for many years”

    I take exception to this generalisation and would ask for evidence please Mr Harrington.

    Show me a portfolio that has not made money over the past 20/30/40 years when being ‘advised’.

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