Being on the periphery of the financial services market I know a little about the turmoil that the retail distribution review has caused. However, I am amazed at how little has changed in the mentality of advisers.
Advisers wish to be known as ‘professionals’, for example, like accountants, solicitors, doctors. Note that all of these professionals charge fees, and you pay (highly) for the expertise and effort that they can bring. However, most advisers still want to continue to charge percentages, a bit like estate agents – but not very many people would categorise estate agents as professionals.
Needing a new pensions adviser I did a trawl of my local pensions advisers and approached five for an introductory chat. I was very up-front in saying that I would happily pay for their time, and pay well, but I would not pay them on the basis of a percentage of my fund. My argument is that the £500,000 I have in my fund, is not going to require five times the work that would be required if I had £100,000 in my fund.
Two advisers did not respond. Times must be good. One argued that he had to charge more for larger funds because the risk was greater if something went wrong and therefore his PI insurance would be higher. Probably true, but if he is paying an extra £2,000 on every extra £400,000 in a fund, I think he needs to find a new PI insurer.
Another said he would happily charge me a flat fee per annum, which he estimated would be £200 per month, or £2,400 per annum. Is it just a coincidence that this is about the same as a 0.5 per cent charge on my fund? For that £2,400 I would get two reviews per year with a conversation about the investment performance, and any changes to my attitude to risk, my longer term goals, and therefore any changes needed to the products. Having set all of this up quite well for the last few years very little has changed in any of these and therefore no action has been needed, and I expect that in the next few years the same will apply. So, for a one hour ‘chat’ with possibly an hour or two of preparation both these advisers think it is treating customers fairly to charge effectively £1,200 a review?
Brian King
Director, Cheltenham
