OpinionApr 16 2014

Cost of advice review makes for sobering reading

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I hate to sound like a middle class parent or a world-weary headmaster, but I am severely disappointed.

The FCA’s review showing almost three-quarters of advisers failed to provide the information required on the cost of advice is quite shocking.

It suggests either a failure to understand what the regulation demands or a failure to comply. Or both.

There have been predictable comment from a few IFAs. The most worrying pondered on the actual statistics for client complaints regarding unclear fees.

This misses this point so badly that it is difficult to know how the individual had the nous to pass their exams.

Let me explain: if clients are unaware they are being misled they are not going to complain but that does not make it right.

If they do not know they are entitled to certain information they are not going to complain when it is withheld.

The biggest concern is that non-compliant firms could be storing up trouble for the future.

The biggest concern is that non-compliant firms could be storing up trouble for the future.

What happens when a few years down the line a client becomes aware he or she has been paying more for advice than they had thought?

What happens when they realise they were receiving restricted advice when they thought otherwise?

Will you blame that on the regulator too or will you try to palm off responsibility to the client?

It is your business and your responsibility to understand the regulatory framework within which you operate.

I note that wealth managers and private banks have performed poorer than other firms in nearly all aspects.

This will come as little surprise to anyone who has ever had personal dealings with them.

As one IFA has noted, they often seem keener to manage their own wealth at the expense of ours.

I also suspect there is an in-bred arrogance within the management of some of these firms that perhaps leads them to believe the rules do not apply to them as they do to the more humble IFA.

This review has been described by the FCA as a wake-up call. You cannot say you have not been warned.

RDR was a chance to get things right, raise your game and make independence the shining light it should be. Do not blow it.

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Fidelity pricing points way forward

Fidelity is setting an excellent example on clear pricing that many of its competitors should follow.

Its Fidelity Personal Investing proposition has laid down a clear marker on transparent and fair charging.

My attention has been grabbed by a number of features. First there is one fee of 0.35 per cent. If an investor holds more than £250,000 then the fee drops to 0.2 per cent – and this lower fee applies to every penny invested, not just the money above the threshold.

Third, when calculating investments Fidelity looks at everything held across all accounts.

Compare this with Hargreaves Lansdown, Fidelity’s major competitor.

Hargreaves charges a basic 0.45 per cent. The fee drops to 0.25 per cent at £250,000 but this applies only to money above this threshold.

And the fee is per account, so someone holding £200,000 in each of two different Vantage accounts would still pay 0.45 per cent.

The difference is striking. The above investor would pay £1,800 a year with Hargreaves just for holding funds compared with £800 at Fidelity.

Then there are the extra fees. One nasty one is the £30 plus VAT per fund Hargreaves charges for probate valuations, with a minimum £100 plus VAT and a maximum £500 plus VAT.

Fidelity charges nothing.

Hargreaves preliminary results showed that for every £1 of revenue it made almost 66p profit.

I am all for healthy profits, but this level feels distinctly unhealthy to me, especially if it means charging the bereaved relatives of loyal fee-paying clients for a service others offer for nothing.

Advertising on the wane

Looking through this week’s personal finance sections I have been struck by the lack of advertising.

This is par for the course at the start of April and has been for as long as I can remember.

Interesting, is it not, that investment firms, banks and building societies extol the virtues of regular saving, yet those who control the advertising choose to target the lump-sum investor at the end of the tax-year.

In the heady days around the turn of the century Money Mail would extend to 22 ad-packed pages in February and March only to dive to around eight pages once the new tax year started.

I am not trying to drum up advertising for the Mail, Telegraph, Times or any other outlet, but it does speak volumes that investment firms are so rarely willing to follow their wise words with hard cash.