Let’s talk total charges
I doubt that the FSA ever spent much time considering the amount of time that will be spent on explaining and agreeing fees with clients. When you rely on academic research, focus groups, and input from consultancy groups, you are unlikely to know what the experience will be like at the coalface.
I have said it before, but I will say it again – a large majority of clients do not want to pay fees. What they really want to do is negotiate just how much commission is being paid. And in case you are wondering, I am not some kind of ‘commission-only’ troglodyte; I moved to a fees-only model more than six years ago. But during that time I have had a large proportion of potential clients rejecting the fee-only route, and have spent too many ‘un-billable’ hours explaining fees to clients.
If people in the FSA would take the time to walk in our shoes for a while we might see better solutions coming from Canary Towers. Walking in our shoes does not simply mean shadowing someone for a week, it means taking real commercial decisions, and trying to balance the demands of the client for the maximum possible service at the lowest possible price, against the demands of the business and its staff.
And it does not help that there is so much inconsistency surrounding charges, regardless of whether they are adviser charges, fund charges, or product charges. If we in the industry cannot be certain about the total charges involved, there is no wonder clients will sometimes get the wrong end of the stick.
This week I am having two long drawn-out conversations about charges. The first conversation is with one of our older clients. She is having immense difficulty reconciling what we say about charges, compared to what she has experienced before. This is coupled with her latching on to short-term performance that she is extrapolating forward into the future. Her gripe is that she is being charged several thousands of pounds for investments that are not delivering any return.
One of our older clients is having immense difficulty reconciling what we say about charges, compared to what she experienced before
She obsesses about every single charge and goes back over several years adding up what she has paid. Unfortunately she does not go very far back when looking at performance. With her previous advisers she did not have a clue what the charges were or what the drag on performance might have been. When she finally left her previous advisers it was not because of charges or even performance, she understood that investments went up and down. Now she is beating herself up because she has more information than she is able to process.
The second conversation will be with a client who insisted on taking me through our charges line by line, number by number until he was clear – and then proceeded to try and negotiate a lower price. I resisted, but it now becomes an annual game because he thinks that is what he should do. Admittedly there are relatively few clients who challenge me in quite this way, but they never seem to challenge me as if it is ‘billable’ time. I bet that was not factored into the FSA’s thinking.
Dennis Hall is managing director of Yellowtail Financial Planning