Sesame reveals impact of Mifid on advice fees


Fixed fee models will be adopted by advisory firms following the introduction of the Markets in Financial Instruments directive II (Mifid II), Sesame Bankhall's John Cowan has predicted.

"I think Mifid II is a journey. I don’t think it is a one-time piece of work and it is not perfect," the executive chairman of Sesame Bankhall Group told FTAdviser and Financial Adviser editor Emma Ann Hughes.

He said: "We are working with a lot of financial planning, wealth management companies and it is fairly clear that we are just at the beginning of the journey. 

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"It is complicated because advisers have to express all the costs that are incurred through various fund management and platforms they are using and express that clearly to the customer."

Mifid II came into force in January this year with the intention to improve transparency in the investment industry.

Mr Cowan said he believed it "will accelerate and concentrate the consumer's mind on what they are paying for and it will frankly, I believe, sharpen up a lot of advisers to explain to the customer what exactly they are paying for", meaning that, at the end of that process, "we 'll have very robust advice businesses".

Asked whether it will clarify the value of advice in clients' minds, he answered: "I think we will see a lot of advisory models develop fixed fee models for advice, that's where we'll go and the ad valorem model will get challenged."

He added: "Not for everybody but I think we are beginning to see elements of that, particularly for the higher value clients. 

"Because the customer will look at their documents and see they are paying a lot of money, and they will inevitably ask the question, 'what am I paying for?' That is beholden then on the adviser to be able to explain the value of advice."

Mr Cowan expressed his disappointment with pension transfers having dominated headlines in recent years, which he said was not representative of the industry.

Since the pension freedoms were introduced in 2015, there have been increasing numbers of people making the decision to transfer out of their final salary pensions and move into defined contribution schemes to be able to access their cash.

He said: "I am really disappointed in what has occurred because this is clearly a marketplace, with pension freedoms, that consumers need really good advice. 

"So to watch some of the cowboy practices, which look like 1970s and 1980s stuff, is deeply disappointing because all of us who have been in this industry a long time welcomed the Retail Distribution Review and the raising of standards."

But he noted the pension transfer industry has got some regulatory change coming in October, which he said will make the whole process much more robust.