FeesApr 3 2017

Advisers hit back at overcharging accusations

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Advisers hit back at overcharging accusations

Justin Modray, director at Candid Financial Advice, has come under fire after claiming fees charged by advisers do not fairly reflect the work carried out following the Retail Distribution Review (RDR).

Mr Modray said clients are paying their adviser around two-and-a-half times more per year than they were before the Financial Conduct Authority (FCA) pulled the plug on commission in favour of customer agreed remuneration at the end of 2012.

Customer agreed remuneration was introduced as part of the Retail Distribution Review.

According to research carried out by Candid Financial Advice, before the Retail Distribution Review the annual ongoing amount paid by fund managers to advisers 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.

Mr Modray said that this means investors could now be paying around two-and-a-half times or more each year than before the commission ban, based on investment growth of around 25 per cent since 2013.

But advisers have hit back at the blanket claim that all advisers have overcharged their clients since RDR came into effect, arguing any increases in fees are justified by their increased workload.

Scott Gallacher, chartered financial planner at Rowley Turton Private Wealth Management, said adviser charges were almost certain to increase post-RDR due to increased qualification requirements that resulted in higher standards, as well as a shortage of supply of intermediaries due to large numbers leaving the profession.

He added that there has also been pressure on initial charges, as clients understand that fees could be negotiable whereas commission may have been perceived as fixed or payable by someone else.

“This may have led to advisers increasing their ongoing advice costs in order to offset this initial fee pressure and maintain their profitability,” Mr Gallacher said.

Mr Modray said that while percentage based fees give advisers a vested interest to grow their clients’ money, they should be regularly reviewed as many advisers charge “whatever they feel they can get away with”.

The FCA rules are that ongoing charges should only be applied where there is an ongoing service, and these rules go further in that percentage of investment asset-based charges should also be converted into monetary amounts, said Nick Bamford, chartered financial planner at Informed Choice Limited.

“Shame really that Justin should launch an attack of this nature. It’s the classic example of throwing enough mud and hoping some of it will stick.”

Shame really that Justin should launch an attack of this nature. It’s the classic example of throwing enough mud and hoping some of it will stick.Nick Bamford

Mr Bamford said that platforms allow the client to see in monetary terms what they are paying their adviser and indeed their chosen platform.

“When you add in the disclosure that takes place via engagement letters, suitability reports and illustrations and key features documents as well as oral disclosure I would be surprised if the vast majority of financial services consumers were not perfectly aware of what they were paying,” Mr Bamford said.

Dave Curley, financial planner and registered life planner at Logic Wealth Planning, said that the amount of work done for clients, especially since pension freedoms were introduced by then chancellor George Osborne, has increased dramatically following RDR.

He added that advisers who charge a percentage based fee will earn more when markets are doing well, but still look after their clients for less when markets go down. 

“I am happy with this as clients come first but I suggest that if Mr Modray is not happy, he moves to a fixed fee and then see how his business model works then. I expect he would have to start working harder for his money,” Mr Curley said.

julia.faurschou@ft.com