OpinionAug 30 2013

So how should advisers structure their fees?

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Battle was rejoined this week after one adviser, Chris Hann, director of Ipswich-based advisory firm Fraser-Hann, told FTAdviser sister title Financial Adviser that the shift to upfront fees had led to clients leaving in droves and forced him to shut his office and work from home.

Mr Hann said he now charges £100 an hour for advice, but has found that most clients are not willing to pay that much.

The commentariat was awash with diatribes in a similar vein last year, but since adviser numbers have taken a more optimistic turn and reports have flooded in of regulated advice being in high demand post-2012, the debate has moved on to the more quotidian concern of how advice fees should best be structured to allow the intermediary to turn a profit while playing fair with clients.

This week FTAdviser reported that data from reporting system Selectapension suggest most advisers think the move to adviser charging has not altered the fundamental virtue of the age-old ’three plus a half’ model.

It’s interesting almost entirely because last week a separate report, based on an admittedly small sample size of 79 firms, found that initial fees are falling in many cases while ongoing fees to pay for a more hands-on service are rising. It said for a £100,000 pot the average charges were now 2.4 per cent and 0.82 per cent respectively.

We’ve had comments from advisers with a range of views on this, with some saying they’ve overhauled their models completely to level up initial and ongoing fees at around 1 per cent, while others assert vehemently that little has changed and nor should it. Others still have cited examples of venal peers charging larger upfront fees of 4.5 per cent or more.

Keep the views coming in. The clear lack of consensus is evidence that the sector has not got to grips with the remuneration changes since the RDR came into force and it remains therefore among the most important considerations in the months and years ahead.

Fail to plan, plan to fail

And it isn’t just advisers themselves that are obsessing over business models in the new world; the FCA is apparently also seeking to get under the skin of adviser firm business plans in order to determine whether they represent a significant risk.

Nothing wrong with that in principle, but Ian Stott, client services director of The Consulting Consortium, said advisers he speaks to are often “astonished” at the level of detail they are often asked to provide, which he described as “a bit left-field for those that have not been suitably prepared.”

However, he went on to pointedly ask how one adequately prepares for questions it is not expecting to face. Most advisory firms, he said, still think the FCA is looking at file checking when they examine their businesses. He demanded that the FCA produce a guide to help advisers know what information they should be able to provide.

And the regulator has said it might do just that, saying it keeps this kind of thing under review and that it “might produce something for firms if needed in the future.”

Advisers are facing an ever-increasing regulatory burden in the post-2012 world, so any long overdue help the regulator can provide to ease this - or at least relieve some of the pressure and stress involved - is to be welcomed.

Network attrition

Back to adviser numbers and further evidence this week of struggles at mainstream adviser networks in the wake of the rule changes, which have placed particular focus on their business models.

While adviser numbers are creeping up generally, there have been a few studies suggesting that networks are hemorrhaging staff and more are opting to go direct. The latest such research, published this week by consultancy Imas Corporate Finance, showed the number of advisers belonging to networks fell 6.8 per cent to 6,896 between January and July.

Separately, Sesame’s audited results this week revealed that the UK’s largest network lost more than a quarter of its retail investment advisers in 2012, with numbers falling 26 per cent from 1,202 to 882.

The number of mortgage and general insurance advisers, on the other hand, grew by more than 30 per cent from 1,020 to 1,370, suggesting a mooted swing away from RDR-affected sectors in intermediation is taking place.

All of this lends further weight to suggestions that networks are having a tough time of it, as they seek to de-risk their businesses in the face of tougher independence requirements but grapple with the ramifications of restricted.

We’d be interested to hear from any network or non-network advisers - and particularly those that have been in one category and have changed post-RDR - on their views.