OpinionOct 29 2014

Advisers may not have hiked fees enough

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
comment-speech

Last week, FTAdviser exclusively reported on data showing financial advisers have increased the fees they charge clients by around 5 per cent since the implementation of the Retail Distribution Review.

The average hourly rate reported by the 3,200 advisers in the MyTouchstone database which charged in this way during the first half of this year was £165.70, compared to £157 per hour in the first half of 2013.

This means there has been an increase of 5.4 per cent, which is well above the 2 per cent CPI annual inflation rate for 2013 as a whole. A similar increase was apparently reported by the increasing number charging as a percentage of assets.

Commentary that accompanied the report talked up advisers showing their value and clients being willing to support higher margins, but I very much doubt this reflects the reality of the situation.

I doubt that those advisers are richer than they were in pre-RDR days due to hefty regulatory bills.

In fact, given the spiralling costs of doing business, especially as a result of the regulatory fee burden the sector faces, it is arguable that advisers probably haven’t increased their fees enough.

In August, FTAdviser spoke to a number of financial advisers who have seen regulatory bills rise by 30 per cent or more, driven primarily by a hike in the Financial Services Compensation Scheme levy.

On top of this we know it’s become more complex and expensive to remain independent post-RDR and we’ve reported a number of times on rising professional indemnity insurance premiums. Other costs, such as electricity bills for offices and the like, are unlikely to have gone down either.

This means that if advisers have only increased their fees by 5 per cent, they are most likely absorbing costs.

And most would feel they have no choice but to swallow this burden to retain clients, as survey after uninformed survey states clients balk at any reasonable fee for professional advice. At least this survey goes some way to countering that consensus.

It is predicted that, following the implementation of the ‘guidance guarantee’ from April 2015, even more people will be seeking regulated advice as they ascertain what to do with their pension savings. The need for full advice for many, especially larger-pot, clients is clear.

Aside from the debate over Steve Webb’s ‘cheap and cheerful’ advice, the truth is that for this to work longer term fees must be managed and the costs advisers face cannot continue this uphill climb.

When asked whether the new 36-month FSCS funding model will cause fees to decrease, one adviser who declined to be named said: “I’ll believe it when I see it”.

He added: “People say ‘why can’t we give cheap advice’, well guess why. I don’t want to sound too woe is me... this is still the best job in the world, but we need some balance.”

Indeed.

donia.o’loughlin@ft.com