Less than half of advice firms now use a percentage of assets charging model for all of their clients, research has shown, as regulatory pressures push advisers towards more versatile fee methods.
Nucleus’s 2020 Census showed that while a stand alone percentage of assets method was still the most popular, it was now only used by 49 per cent of advisers as their standard charging method.
The prevalence of this fee structure has been steadily dropping over recent years, down from 52 per cent of advice firms in 2019 and 73 per cent in 2018.
The wrap-platform polled 180 of its users at the end of last year and found 34 per cent of advice firms now used a combination of different fee charges, including tired percentage and fixed fees, while 10 per cent said their charging differed by client segment.
Nucleus’s report attributed the change to product governance - or 'Prod' - rules which came into force as part of Mifid II in January 2018 and prompted advice firms to consider their target audience and their clients' specific needs more thoroughly, resulting in greater client segmentation.
The Nucleus report said: “[These] rules may have had an impact, with one in every 10 firms differing their charging by client segment, which feels sensible but not directed by Prod.
“Advice charges may often be the largest figures as part of costs and charges disclosures and in some cases the only charge clients truly understand, so it’s no surprise to see these evolve, particularly at client segment level.”
The Mifid II rules also mandated advisers, asset managers and platforms to produce costs and charges disclosure documents, which laid out clearly and distinctly the different fees levied on the client.
This has, in turn, created downward pressure on fees as advisers search for low-cost options to bring down the total charge displayed to their clients.
The Financial Conduct Authority has also appeared to turn its sights on charging, in particular the potential conflicts of interest within ongoing percentage fees, in its latest crackdown on advisers.
Disclosure documents
Nucleus’s census illuminated the effects of the cost and charges disclosure documents, with advisers reporting nearly a third (29 per cent) of clients had challenged their advice fees since the documents were mandated.
Some 22 per cent of clients had challenged platform and investment fees, while a mere 6 per cent had been concerned with their discretionary fund management costs.
But advisers were split on how helpful the documents had been. Many (44 per cent) of those polled believed they had helped improve client understanding about the charges they are paying, but 30 per cent thought they had increased client confusion.
The future
Looking forward, nearly a third (30 per cent) of advice firms were considering selling their business in the next three to five years. This is up from just 10 per cent the year before.
The main challenge facing advisers was business growth and efficiency, according to the census, with 30 per cent of advice firms marking this the biggest battle, while the main opportunity was the need for financial planning services.
imogen.tew@ft.com
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