Study shows younger advice clients prefer upfront fees

More young people are choosing to pay upfront fees for advice post-RDR compared with older age groups, data from Selectapension has shown.

Analysis of the pension and investment planning firm’s 3000 users revealed that the number of clients aged between 25 and 35 who were charged a percentage on their assets had fallen by 20 per cent, more than any other age group.

Almost 70 per cent of clients in the youngest age group examined by the provider were charged a proportion of their assets pre-RDR, but has dropped to 49 per cent since January this year.

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By comparison 62 per cent of clients aged between 35 and 50 and 63 per cent of those aged over 50 were still charged this way, a drop of 14 per cent and 13 per cent respectively since RDR.

Peter Bradshaw, national accounts director for Selectapension, said: “The evidence suggests that the younger generations are gravitating towards these new charging formats as many advisers try to wean themselves off commission.

“It’s crucial that advisers keep changing their business model to adapt to this upfront culture and do more to cater to generation Y generally, as they are experiencing the biggest growth in salary out of any age group.”

The FCA recently expressed concerns on how advisers present percentage charging to clients in an 11-page thematic review of the advisory industry’s response to RDR.

It stated that some advisory firms were not presenting the likely cost of advice in cash terms or, if they were, it was not applied to the ongoing cost of advice.

An spokesman for the FCA said the regulator was not “against” the principal of percentage charging but that advisers should endeavour to present the costs “as clearly as possible”.

He added: “The client should be able to understand how much they will be charged, not just in the first instance but over the lifetime of advice. Our recent report found that not all percentage charging is as clear as we’d like it to be, and we’ve provided examples of best practice that provide good guidelines on how charging should be presented.”

Adviser view
Antony Williams, managing director of London-based Evolve Financial Planning, said: “The reason why advisers charge young clients upfront fees is a practical one. Younger people tend to move jobs more and are less likely to be investing as much. Advisers have to face up to the commercial reality here, which is that young people will not require that same ongoing advice charge.”