An increasing number of advice firms expect the consumer duty’s ‘value for money’ rules to lead to an increase in the total charges clients pay.
One in six (16 per cent) of the116 advisers polled by Copia Capital Management said they thought client charges would increase as a result of the regulation, compared with 2 per cent when advisers were asked the same question last October.
Just under 40 per cent of respondents said the value for money rules would have no impact on charges, and 22 per cent said they expect to see a reduction in fees.
Robert Vaudry, managing director at Copia, said some firms who are currently charging clients less than 1 per cent say they are now considering putting their fees up, either increasing the absolute fee or raising the asset threshold where fees decrease.
“This may have been something they were thinking about anyway to reflect the rising cost of living, but we’re also hearing that through the requirements of consumer duty firms have a better understanding of the cost of the services they provide and the value they are delivering for clients, giving them an opportunity to re-evaluate their charges,” he said.
“As a result, I think we could see the cost of advice increase marginally.”
Mike Barrett, consulting director at the Lang Cat, said advisers need to consider the needs of each client.
“Almost certainly someone with £3mn to invest will have more complexity from a planning and investment management point of view than someone with £30,000.”
However, just charging a blanket percentage without considering the client’s needs, especially if you have very high net worth clients, will be poor practice, he added.
“There is likely to come a point where the consumer duty assessment process will shine a light on the cost of delivering these services.
“You might need to cap your fees for high net worth clients, while at the other end of the scale, you could find that those with lower assets just aren’t going to get good value for money from the fees you need to charge.”
The consumer duty, which will be introduced this summer, is a new set of standards of consumer protection across financial services.
It requires firms to put their customers’ needs first, and to consider the needs, characteristics and objectives of their customers, including those with characteristics of vulnerability.
sally.hickey@ft.com
