Several years ago I was working at a company with 200+ advisers when the FCA (our regulator), brought in new rules to improve cost disclosure. All advisers were taken off the road for a fortnight for retraining!
The change was the introduction of a new piece of paper that had to be handed to all clients, for the first time outlining the range of our % fees.
We spent days in the internal rooms of our local office, training on how to present this new piece of paper and then running through role plays. In these practices, we would have a colleague play the client and get used to how to explain the document to clients.
It must have cost the company a fortune in lost revenue.
The company was panicking that this extra transparency would lead to clients questioning the fees they were paying and asking for reductions.
In the event most client meetings went smoothly and each client just became a little more aware of what they were actually paying.
The next step in the evolution of adviser charging probably requires a similar FCA intervention.
Financial advisers and wealth managements are used to disclosing % based fees and the research shows that most clients are not good at understanding the full cost of a % in pounds terms.
It would be great if clients were given a document converting all % costs into a single annual fee expressed in £.
Most clients with £500,000 invested might be happy with a 1% or 2% total cost (some firms are nearer 3%), but much less happy being presented with a document showing the total cost to be £5,000 or £10,000. I expect that most £500,000 investors do not pay £10,000 per year for any other service in their lives!
The same applies as you go up the investment scale but the numbers get even more indefensible.
Which £3,000,000 investor pays £30,000-£60,000 per year for another service in their life? That is a full time salary and you could start to employ someone directly to manage your finances.
I don’t know if this intervention will ever happen but more transparency is always helpful.
Sunlight remains the best disinfectant.
Of course, if this transparency does come along, we might finally get a questioning of costs and a move to a flat retainer fee model. It would lead to a more transparent choice for investors and more competition on fees.
Good luck with your adviser hunting and do contact us if you want of free guide to Flat Fees Advice.