Article by Phil
There have been several articles in the financial press recently pointing to continued increases in Pension Advisors fees.
That is despite the Financial Conduct Authority (FCA) introducing the Consumer Duty last year. This legislation put a number of new requirements on financial advice firms to review their business with an eye on how what they do affects and impacts clients. One area of the Consumer Duty was a requirement to provide clients with fair value. Perhaps the FCA thought that this might lead firms to cut their fees, but it seems in some cases it led to firms increasing their fees. But not all of course.
St James Place new prices
St James Place (SJP) the biggest advice firm in the UK (despite only providing restricted advice on their own funds) found themselves in the spotlight under the Consumer Duty.
Their issue was allegations that they hadn’t provided clients with annual reviews, despite clients being charged for the service. This led them to set up wide ranging review of their business. Especially since their share price took a dive. What has come out of the review is a new charging structure for advice. One which is much lower than their previous charging.
Their new Pension Advisor fees are 3% on the first £250,000 of the investment, then 2% for the next £250,000 and 1% any further investment. On a £400,000 investment the advice fee would therefore be £10,500. How does that compare with our fees?
Our advice fees
We charge 3% for the first £150,000 invested, then 2% on the next £150,000 to £500,000 and 1% on any investment beyond that. So, on a £400,000 investment we would charge a £9,500 advice fee. That is £1,000 less.
On a lower investment of say £200,000 SJP would charge £6,000, whereas we would charge £5,500. On a higher investment of say £600,000 SJP would charge £13,500 and we would charge £12,500.
This is a significant reduction in Pension Advisor fees by SJP. They haven’t announced changes to their ongoing fees yet and whether they will be dropping their notorious exit penalty for clients to withdraw their own money. But I think the FCA can pat themselves on the back for initiating this change.
Will people always use financial advisers?
With an estimated £5 trillion to be passed down a generation in the next 30 years, a lot of advice will be needed. But will peoples current advisers be needed? Maybe not, according to research by Money Marketing (22/10/24). They found that:
- 52% of advisers had “engaged” with the beneficiaries of their clients’ estates. That seems like a good start.
- 58% of clients think their beneficiaries would use their current adviser and
- 80% said they would recommend their adviser.
- 80% of beneficiaries also said that would probably invest some of their inheritance.
One way for advisers to stay engaged is to act as executors of their clients estates. This can be a good idea for a number of reasons. They already know their client’s financial situation which saves time and money when it comes to probate. They are obviously trusted. They are also likely to charge a lot less than solicitors to undertake probate work.
This is likely to be increasingly important as the way in which people access advice changes. We are now being told that 70% of under 25’s access financial advice via TikTok rather than searching via Google. This is an important change as advisors are not normally visible on TikTok which is where unregulated fin influencers tend to be most visible. These are unregulated and unqualified individuals who do not offer advice. It’s an increasingly dangerous situation and one that is only likely to get worse over time.
Why use a Pension Adviser?
The Real-Life survey by SJP found that once you have an adviser, 75% of people were unlikely to change advisers. Plus, most people over 55 would stick with their adviser for 10 years on average, with 90% of people having an ongoing advice relationship with their advisor.
So, why do people use an adviser. The survey found the reasons included:
- Trusting their adviser
- Their advisor understanding their needs.
- Good investment returns.
- Having someone to help with the major financial decisions.
- Feeling that their adviser looked after them.
These are all important reasons why an ongoing relationship with your pension advisor is very important. Regardless of the fees, it is worth it in the long run, to have peace of mind.
