How advisers get paid remains critical to their futures, but the noises coming from the FCA suggest that adviser remuneration is likely to come under increasing scrutiny in future.
All of this seems a bit odd because I thought the RDR was meant to sort out this issue once and for all. Yet it appears that the FCA’s third post-RDR thematic review will look at fee disclosure even more closely. Is something wrong?
There is no suggestion that fees themselves will be scrutinised, although perhaps they should. Do the public really know how much it costs to consult an adviser before they do so? A quick trawl through a few adviser websites suggests a less than common policy among advisers on fee disclosure.
Some good, some not so good. Possibly advisers fear that being too upfront, too early about fees will deter new clients. It is a shame the regulator does not level the playing field by insisting on a common format for fee disclosure on adviser websites’ home pages, the starting point for many new clients.
It is no wonder the regulator has misgivings that advisers are not being clear enough, early enough in the advice process about how they will be paid.
I have spoken to many advisers and financial planners over the years. Almost invariably I have found the vast majority of good advisers and planners very upfront about their fees very early on, often offering a free initial meeting to discuss the options available and the fees entailed. There is every reason for this. No adviser worth his salt wants to take on a client who is unwilling or unable to afford their fees. It is simply not good business.
One area of FCA focus, I understand, will be the lack of clarity on adviser advice restrictions, although I wonder if it is unrealistic to expect restricted advisers to ever broadcast this fact too brazenly? I suspect not.
I came across a mortgage broker recently trading from a shop-style premises where the word ‘Independent’ in the shop sign had even been covered up quite clumsily, so perhaps the regulator is making its presence felt in this area. No bad thing.
Another area of concern for the FCA is in so-called “developing business models.” By this, it is probably referring to the growth of online, financial ‘guidance’ and portfolio management services which could one day bridge the advice gap.
A quick trawl through a few adviser websites suggests a less than common policy among advisers on fee disclosure.These offer a cut-down, simpler service for online investors who want some guidance and perhaps continuing portfolio management but are not willing or able to pay for full one-to-one advice. I have some sympathy with this approach.
It is patently obvious that as we have moved to a more professional, fee-based adviser sector the vast majority of consumers will never be able to afford a professional adviser who may charge fees of £200 to £300 an hour.
Even if they could, many consumers appear unwilling to trust a financial adviser (odd how they trust an online service which could be based anywhere but that is another issue...). With this in mind, if the masses who want to invest are to be able to do so in at least some way they are probably better off with some guidance from a simple advice service than not.
On the more positive side for advisers, some advisory firms are grabbing the opportunity to expand into this, mostly online area. It is early days and most have been quiet about their success but it is a logical extension and puts to good use the experience they have built up over many years as advisers or planners.
I do not think you can beat professional, one-to-one advice delivered with care and skill but it is not unlikely in future that these online services may well provide a conduit for consumers to eventually upgrade to a full service wealth management adviser, spurring growth in the number of advised clients overall.
Companies such as Fidelity, Hargreaves Lansdown and others are already offering an ‘upgradable’ service. Clients start on a DIY, execution-only basis but are able to become advised clients as their needs change.
Other new offerings, such as the interesting online portfolio manager Nutmeg, offer a cut-down investment management service which could be all many want.
All this is a sign that there is plenty of life in the financial advice sector, although a key issue for the regulator will be where does guidance stop and advice begin? Is a recommended list of 50 or 150 ‘hot funds’ advice or simply a helpful shortlist? I believe the jury is probably still out on this one but it is an area where greater clarity is needed.
In any event, however they receive advice or guidance consumers need to be fully engaged with what they are buying to avoid disaster and this is the bigger question.
If many turn to online services they do not fully understand that really is not much progress, however cheap and easy it may be. Click in haste, repent at leisure.
Kevin O’Donnell is a financial writer and journalist
