An article in the FT Adviser recently (6/2/20) suggested that Financial Conduct Authority (FCA) was likely to undertake an investigation into charges in the advice market at some point this year, as part of its ongoing competition and markets study. What was surprising to many advisers was the further suggestion that the FCA was likely to find that the adviser market was uncompetitive based on market analysis by consultancy firm Lang Cat.
The Lang Cat analysis looked at the ongoing service charges made by advisers across the market and from a sample of over 200 adviser firms it founds that over 70% of advisers charged either 0.5%, 0.75% or 1.00% as their ongoing service charge. On this basis, the assumption is being made that means that firms are being uncompetitive because they are charging similar amounts!
This seems a bit of a stretch to us.
A charge of 0.5% on a £250,000 portfolio is £1,250 whereas a 1.0% charge is £2,500, a significant difference and one which you would imagine a client would take into consideration when deciding between offers on a competitive basis?
Surely one of the factors to consider is what the client is receiving in return for the ongoing service charge. For example, we have a range of ongoing service options, ranging from our digital online and telephone-based offer, through our bronze service with one face review per year, all the way to our gold service proposition, which includes quarterly face to face meetings. Surely there is a difference between a telephone-based service and seeing a client every three months face to face and surely the charge for those two services would be very different?
The article seemed to be pointing the finger at the blanket 1.0% ongoing service charge, charged by 38% of advisers, seemingly regardless of review frequency. We don’t charge 1.0% for ongoing service, we have several tiers depending on the service being provided and the value of the portfolio, with minimum and maximum charges. In some instances, however, with a small portfolio our minimum fee could be over 1.0%.
I suspect we are going see headlines later in the year about over charging by advisers, which would be very unhelpful against a background of rapidly increasing compliance costs and regulatory fees which are driving up the cost of advice.
What was quite revealing was recent data from new robo-adviser market entrant OpenMoney. They were trumpeting their growth rate claiming to attract 1,500 new customers a week with their robo offer. This essentially means that a client receives no face to face engagement, everything is done online or over the phone. There is no charge for initial advice, but the average ongoing service charge is 0.53% a year. That’s 0.53% on average for dealing with your advice online or over the phone. In comparison to our personal face to face advice service, all of a sudden, our fees look even better value for money!