Arriving just one week after Christmas is the RDR regime. The increased professionalism and transparency of fees will be a positive influence in the eyes of prospective clients. If we were supermarkets, we would have been heralding this event for months now, ensuring that our customers were aware of the improved opportunities that are available and thus maximising the sales opportunity. Despite not having the manpower of Tesco’s and the like, advisers have been busy rising to the many challenges of RDR, ensuring their businesses are ready for the new regime.
The latest challenge comes in the form of the FSA’s consultation on changes to adviser charging rules to prevent ‘kick-back’ payments from discretionary fund managers.
The FSA says: “Payments from DFMs or the provision of non-monetary benefits have the potential to bias advisers towards discretionary services, and if payments vary between discretionary investment managers, to bias advisers towards recommending discretionary services that pay the highest amounts.”
This fundamental concern that advisers will select the services of the highest bidder is surely outdated. Advisers would be driven towards the most suitable solution at the most reasonable price. Or am I being naïve?
As importantly, the FSA have proposed that in future, advisers should not be remunerated by DFMs and must be paid separately by the client. Advisers are going to have to agree with their clients what fee level they are going to receive and then presumably invoice them. Looking from the client’s point of view, this is a healthy practice, as transparency will help to cap overall fee levels. However, for the adviser, things may not be quite so comfortable; not only has he to persuade clients that he should be paid for a service being carried out by the DFM, he must also regularly account to the client, reminding him of both the fees he is paying and the value he is receiving. If we remain in a low growth environment, then it is likely that there will be some uncomfortable conversations between advisers and their DFM-invested clients;
Adviser: “The markets have moved broadly sideways over the past year, but I’m pleased to report that your portfolio has not lost any value.”
Client: “But I have paid both the DFM and you for looking after my money. All of my profits have been swallowed up in fees.”