Charges are very much in the spotlight in the moment, in light of the latest regulatory knuckle-rap for advisers on disclosure published just this week.
In that context, the service offered to the smallest clients of this week’s Friday Interview subject, Questa Chartered, raises interesting questions.
One of the things the FCA wanted to see more of was evidence of ongoing service where an ongoing fee is charged.
If a client with minimal assets joins Blackpool-based Questa’s Essential tier of service, which is effectively a ‘fire-and-forget’ move into an actively managed fund where clients do not need a huge amount of interactivity with advisers, then how can an ongoing fee be justified?
According to director Stuart Dewin, the service charges up to 1 per cent as an ongoing charge for the service, but this could be lower where there is no ongoing service.
He says the charges cover the costs of keeping information up to date and producing reports, which is a service that all clients receive irrespective of how interactive they may be with their individual adviser.
Mr Dewin said: “We charge up to 1 per cent of funds under management, but obviously if we aren’t providing an ongoing service we would be looking at reducing that.
“But we still need to have an ongoing fee to cover the cost of keeping information up to date and producing the letter and... investment report for the client.
“We were really proactive in 2012 in creating these four service levels. We actually have a page which details what the client will receive for what they are paying us. The client is fully aware of what [services] they will receive and we have to make sure the client receives them, otherwise we aren’t doing our job.”
As long as you can point to where the fee is going and how it is being used, in other words, you can probably justify it as covering whatever costs might be associated with providing ongoing service to lower-tier clients, Mr Dewin suggests.
In short: you need to be clear with clients what they are paying for so they can compare effectively and go elsewhere if they choose.
As simple as it may sound, Mr Dewin is not surprised at the FCA’s disappointing findings when it comes to disclosure of fees.
“I talk to different financial advisers and we go to the same meetings and seminars, and from talking to them, there are some really good IFAs out there and there are some we are streets ahead of in terms of process.
“It doesn’t surprise me that there are some that are lagging behind and not disclosing what they should be.”
Speaking of justifying ongoing fees, Mr Dewin bemoaned the increases to regulatory levies which have been handed down by the FCA in the last co
It doesn’t surprise me that some advisers are not disclosing what they should be.This, he says, is one of the biggest issues he has in trying to maintain charging consistency for clients.
“The problem I have with that is I find it very very difficult to budget for the year ahead. There isn’t any sort of guidance or forewarning. It’s very very frustrating. It’s the people that are doing the job well that have to mop up and pay for people who are doing the mis-selling.
“We wrote to our local MP about this but there is nothing he can do.”
His local MP just happened to be Mark Menzies, who was embroiled in a scandal earlier this year when the Sunday Mirror investigated claims he paid a Brazilian male escort for sex and drugs, which led to him quitting his post as ministerial aide. Mr Menzies has always denied the allegations.
“I think he did raise it in Parliament and we received a couple of letters back from him but he had other things on his mind.”
The firm
Questa is based on a firm which was founded in 1994 but renamed in 2007. The firm comprises two directors, six advisers (two employed, four self-employed), a mortgage and a business consultant, and three paraplanners and three admin staff.
Questa’s director Stuart Dewin told FTAdviser that although is in talks with a couple of other financial planners who might join the firm, he is not especially set on expansion for two reasons.
First, he believes his company is accomplishing its goals as it is, and he would like to keep doing the business it already does well. Second, he would prefer to be as selective as possible about the people he takes on.
“Last year we increased our turnover by 17 per cent. I’m looking at continuing our nice steady growth and I think that’s achievable without adding more financial planners to the business.”
Mr Dewin is certified, chartered, qualified by the Society of Trust and Estate Practitioners and believes that the Retail Distribution Review is the “best thing to happen to the industry”.
“It’s what the industry needed. My goal is to be looked upon as highly thought of as accountants and solicitors and without the RDR I don’t think we had any chance of that happening.”
Like so many others, in 2012 Questa confronted the changes wrought by the RDR by segmenting its client base, creating four different levels of service depending on what a given client wants to pay. Although the firm itself will welcome clients with as little as £30,000 in assets, Mr Dewin personally will only see clients with £100,000 or above.
If he has any other gripe about the industry, it’s his experience with product providers when trying to do probate or inheritance business. Past experience has led Mr Dewin to feel that most providers put up barriers to keep client money as long as possible, which advisers and clients then have to overcome at what is generally one of the more difficult times in a client’s life.
These can include demands for original birth certificates or new guarantees of probate where the adviser believes neither are necessary.
Pension changes
“I’m still quite shocked at the changes coming into play next April, but I would say my advice hasn’t changed.”
Although Mr Dewin says the changes wrought by chancellor George Osborne will be good for higher-net-worth clients who can afford to benefit from drawdown, he says they could be dangerous for lower-value clients.
These are the people whose wealth does not justify going into drawdown but for whom an annuity will only deliver a trickle of income, who Mr Dewin believes are more likely to be tempted into taking their cash all at once.
“I think there is still a place for the annuity market for the lower end client. [The Budget] gives them the option to take their whole pension pot out and I’m not sure that is the best thing.
“I understand why they have done it, and for the more sophisticated clients it’s a good thing, but it also leads to a lot of dangerous decisions being made.”
