When deciding on a charge, Dominic Rose, acquisitions and sales director of Bellpenny, says advisory firms need to consider total cost, size of investment in relation to risk and an appropriate profit margin that ensures sustainability and longevity of firm as is appropriate to providing long term financial planning.
The first step in settling on a fair charge is for adviser firms to understand their cost base per hour to deliver advice and then test it against the parameters of their typical customers’ likely needs in terms of advice services to work out a commercial rate, says Simon Thomas, head of policy at Tenet Group.
Mr Thomas says fees need to be proportionate to the cost of delivering the advice and not excessive.
He warns the way a firm charges a fee can create conflicts of interest especially if the charge is payable only if the client proceeds with a recommendation.
The FCA states it is up to the adviser whether they charge a flat fee, hourly fee or percentage but the charging structure “must be shown to the client in good time before the service is provided.”
When asked “If I charge 1 per cent for a £50,000 investment and 1 per cent for a £250,000 investment and the work is the same, am I not going against the principle of treating customers fairly?”, the regulator states: “The costs should be clearly disclosed and explained to the client, so that the customer understands the charges and agrees them.”
To be able to make an ongoing charge, the FCA states the service must be a genuine service for the provision of personal recommendations or related services and not just, for example, a vague statement (even if agreed with the client) that the adviser is available on the end of a phone at any time.
The regulator says it is acceptable though that where a recommendation is for a regular payment product, that the adviser charge can be payable over time, without further ongoing advice.
Although the FCA won’t get involved with how much you charge, Lee Travis, chief executive of the New Model Business Academy, says they could ask about the reasoning behind your adviser charging structure.
He says there has to be some form of consistency in your approach but understandably, advisers will have to make commercial decisions in order to secure business that may be off ‘rate card’.
Additional documentation would be recommended into this rationale, but at the end of the day, Mr Travis says as long as it is clearly disclosed to clients and they agree to the fee and see value, there should not be an issue.
Ultimately there are no hard and fast rules about what an adviser should be charging for their services, Chris Hannant, director general of the Association of Professional Financial Advisers, says advisers need to consider local market rates.
Advisers also need to ensure that they are guided by the FCA’s six Treating Customers Fairly outcomes when deciding what is a fair and reasonable amount to charge for the services they are providing, Mr Hannant adds.
