Financial advisers have been accused of charging higher fees that do not fairly reflect the actual work they have carried out, following the Retail Distribution Review (RDR).
Clients are paying their adviser around two and a half times more a year compared to when the FCA banned sales commissions at the end of 2012 as part of the RDR, according to low cost independent financial advice firm Candid Financial Advice.
The firm claimed that under the commission regime the annual ongoing amount paid to advisers by fund managers was often around 0.5 per cent, but since 2013 advisers have had to charge an explicit fee with many opting for around 1 per cent.
Based on investment growth since 2013 a typical portfolio might have grown by around 25 per cent, and so investors could now be paying around two and a half times or more each year than before the commission ban.
Justin Modray, director at Candid Financial Advice, said that while percentage based fees give advisers a vested interest to grow their clients’ money, they should be regularly reviews as many advisers charge “whatever they feel they can get away with”.
“Advisers who charge high and rigid percentage annual fees are getting rich from the recent upturn in markets. In most cases they won’t be doing any extra work, so don’t hesitate to ask for a better deal. Overpaying your adviser could cost you thousands of pounds and ultimately affect when you can afford to retire.”
Mr Modray encouraged consumers to consider switching advisers in order to get a better deal on fees rather than sticking with their existing advisers as getting an adviser to cut their fees “might feel like squeezing blood out of a stone”.
Christopher Foster, partner at Pennines Independent Financial Advisers, said he has not noticed any of his peers overcharging clients or increasing fees following the RDR to make up for lost commission.
"I don't think there's evidence of that but there could be elsewhere. I don't recognize that picture," Mr Foster said.
He added that he has never had a complaint from a client about fees, and if consumers are unhappy with the services they are receiving from their adviser then they should switch, though a good financial adviser can be hard to find.
"Considering how busy we are there must be a shortage of quality advisers out there. We're run off our feet," Mr Foster said.
"I never get complaints about fees. We're very open and transparent about charges."
julia.faurschou@ft.com
