Financial advisers need to consider reducing their charges to as low as 1 per cent, the Chartered Institute for Securities & Investments (CISI) has been told.
Discussing the effects of Mifid II, Marc van Poeteren, chairman of the Financial Planning Standards Board Europe, said that combined with the technology and growing margin pressure, the transparency of the new regime should push adviser fees down.
Mr van Poeteren, a financial adviser based in the Netherlands, said: "In the future we should reach a level around 1 per cent but we are not there yet.
"It may not be reached in a couple of years but we know what the impact of costs is on long-term investment returns. You cannot reach your goals with a charge of 2 or 3 per cent, it is simply impossible.
"The problem is the costs for our clients is our income so that's a difficult decision but there is a lot of pressure on margins because clients know what they are paying and it is becoming transparent. Either you do something now and you have a future business model or you want and die."
As part of Mifid II, which came into effect in January, cost forecasts need to be disclosed and there is an annual requirement for clients to receive a breakdown of actual costs, which means this requirement effectively kicks in from January 2019.
During the same session Simon Chapman, head of retail at Complyport, explained how advisers should approach the suitability reviews they are supposed to conduct annually.
He said: "Suitability is suitability. There is not shortcut for suitability. It either is suitable or it isn't.
"But the document you provide to customers explaining why it is suitable doesn't need to be as voluminous as it would otherwise be.
"A suitability report can be very detailed but it can be a short and sweet version for the review. It is not really in the customer's interests to get every year a thick pack."
damian.fantato@ft.com
