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 couple of years, saying that his firm saw a small change last year and a larger hike the year before.