As moves to take advice online continue apace and the regulator consults on ways of simplifying advice process and virtual delivery, questions have been raised as to whether customers are really benfitting from the ‘lower-cost’ options that have so far been launched with reduced fees.
There has been much discussion in the industry as to how lower value clients can access advice and a number of advisers now offer ‘virtual’ sessions via Skype or Apple’s Facetime.
Speaking to FTAdviser, Derek Bradley, chief executive of Panacea Adviser, said that while Skype and other sessions can form “part and parcel” of the full advice process, those using virtual systems must ensure everything is recorded and documented.
Mr Bradley intimated that the need to conduct full compliance procedures and other aspects of a full service could prevent fees falling too far - and even that some advisers charging percentages may not reduce costs for those they are not serving face-to-face to help maintain margins.
He said: “People are using that as a low cost way of advising. They are saving costs by not travelling and they may not have office space as it is virtual, but what are the other costs they are saving on?
“Skype or Facetime can be used but remember there will still be other costs that stay the same - compliance, paraplanners, outsourced fund managers, etc.
“Will the client or the adviser see a reduction in cost? If they are charging a percentage of funds under management does the client see a reduced cost, or will advisers pocket the difference to make up for lost margins?
“Clients who are charged on an hourly fee will see lower costs, though.”
FTAdviser previously revealed that Craig Davidson, founder and compliance director at Devon-based Reckitt House, launched a “virtual face to face” service in February to help address the advice gap.
Mr Davidson, whose firm charges around half of the 3 per cent initial charge still seen across the market but whose ongoing charges remain in line with the oft-quoted industry average of 0.5 per cent, believes Mr Bradley “has a point” about ‘virtual’ services’ charges.
Referring to his own firm’s 1.5 per cent plus a half model, he said he has seen fees generally increasing in the post-RDR world, with no differentiation between virtual and full face-to-face charging in many cases.
He said: “If we take into account what many IFA commentators are saying, that their margins have been eroded, then I suspect any savings will be used by the firm to increase profit.”
Mr Davidson added: “Those charging percentages have increased that to the target mark of at least 0.75 per cent, with 1 per cent becoming the norm, while hourly rates have increased to about £250 per hour across the board.
“I haven’t seen any fees coming down, or indeed any suggestion of fees coming down. If anything it is the opposite.”