OpinionApr 24 2014

Clarity on charges must allow for different types of client

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I have been thinking about the whole business of charges lately. Those of you who have followed me for a few years will know that I always charged hourly rates for initial advice, which I translated into a project cost.

That cost would not increase if I was slower at doing the job, but would decrease if I completed the task more quickly than I had anticipated.

The FCA’s views on generic and specific adviser charges disclosure has always caused me some difficulty, given that a client could have his issues answered very quickly, but another client with seemingly similar questions and advice requirements could present a much more time-consuming piece of work. So how can I give a meaningful generic idea of costs up front when not even the client necessarily knows what he is asking?

“A review of my pension” could be really quick if it is a relatively new auto-enrolment contract, or it could be incredibly complicated if it is an armed forces pension with multiple periods of membership, reserve service and periods in the old and new schemes.

Even reviewing an auto-enrolment pension could be a really quick exercise if the client is 23 years old with limited other assets and resources, or very much more complicated if the client is 63 and already in receipt of pension income, able to join the scheme but not obliged to, in ill health and with complex family circumstances.

To express a wide range of potential costs is clearly a problem for the FCA, but what else can you do?

To express a wide range of potential costs is clearly a problem for the FCA, but what else can you do? Oh yes, I remember: charge percentages that would yield, in these circumstances, a trivial (or zero) business revenue which would in no way reflect either the costs of advice, the costs of being in business, or the value of the service offered. Which is in fact also a problem for the FCA, who would rather we did not resort to contingent charging.

Unless the FCA begins to understand the real dynamics of the client-adviser relationship and the advice journey, they run the risk of making all that disclosure even less transparent and user-friendly than it ever was. Confused clients who back away from the advice they need will be the biggest losers.

Unless the FCA begins to understand the real dynamics of the client-adviser relationship, they run the risk of making disclosure even less transparent

If the FCA wants clarity and transparency in adviser charging, and it wants our remuneration to be independent (meaning not contingent on product sales), I suggest it gets to understand this very real problem, and quickly.

Gill Cardy is network development director of ValidPath