FeesFeb 3 2020

Advisers clash over fees as competitor enters

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Advisers clash over fees as competitor enters

The arrival of a wealth manager challenging the market with advice charges of £500 per year has reignited the fee debate.

Welsh advice firm Bancroft Wealth caused a stir in January when it promised “fair fees forever” in the form of a flat £500 charge per year for advice, claiming it represented better value than traditional percentage-based costs for any customer with a portfolio of more than £39,000.

But industry commentators have criticised the model, suggesting it is hard to quantify how much value for money this would actually bring to clients.

Peter Emery, manager director at Emery IFA, criticised Bancroft’s flat fee approach as “clients do not all have the same needs” and so to charge them all the same would be “unwise and unfair”.

He also branded flat fees unsustainable for advice firms as costs — such as FCA levies and personal indemnity insurance — were “driven by assets under management” so therefore it made “no sense” to have flat fees.

Former technical specialist at the Financial Conduct Authority Rory Percival said: "It is very difficult to see how the level of service would be such that this is value for money for the client.

"[The 1 per cent charge] is appropriate for the firm's 'normal' clients, with lower sums invested, but the firm hasn't segmented their clients appropriately to have different charging structure for higher net worth clients."

Meanwhile, Scott Gallacher, chartered financial planner at Rowley Turton, said advice fees were typically in the range of 0.5 - 1 per cent, adding that it was ultimately for individual firms and their clients to agree an appropriate fee.

But Clive Russell, founder of Bancroft Wealth, told Financial Adviser the firm's clients were previously paying an average of £6,000 per year for advice while one client was charged to the tune of £34,000.

The couple was paying a 1 per cent ongoing fee on assets of nearly £3.5m, split across primarily Sipps and Isas as well as EIS and offshore bonds. Meanwhile, the investment was in a standard model portfolio.

According to Bancroft, the clients saw their adviser just once a year with very few portfolio changes.

Mr Russell said it was "hard to justify" such fees being charged.

Mr Russell accepted a flat fee service, such as the one suggested by Mr Emery, typically attracted larger investors, but argued this meant Bancroft’s clients were not subsidising other investors with lower-value portfolios.

He said it was “really a question of client choice” and that Bancroft was just offering another choice to those who felt they were not currently getting good value.

Mr Percival agreed, saying flat fees were better linked to the value provided by advisers — the actual advice — rather than percentage fees which related more to transaction.

In terms of business costs, Mr Russell said the model had been tested and it was clear it was a profitable service and that costs were kept down through use of technology and not offering face-to-face meetings.

Bancroft does not offer the £500 service to those with portfolios over £5m and instead agrees a bespoke added fee.

Others raised concerns Bancroft was not providing extensive financial advice. Martin Bamford, director of client education at Informed Choice, said it seemed Bancroft was offering "limited investment advice".

He added: "There's a lot of focus on the cost on advice and planning, when really what matters is the value delivered. If you pay £500 a year and receive £400 a year worth of value, for example, that’s an unfair fee compared to paying £5,000 a year and gaining £20,000 a year worth of value.”

But according to Mr Russell, Bancroft offered “exactly the same as any full service, whole of market IFA”, including advice on inheritance tax, venture capital trusts and enterprise schemes.

Mr Russell added: “The only difference is that our service is telephone- and internet-based.

“I'm sure lots of people want to speak with an adviser face-to-face, but the overwhelming response we have received suggests that many clients do not feel that they are currently getting value for money.”

imogen.tew@ft.com

What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.