When you seek financial advice, there should be absolute clarity over costs involved.
The introduction of the Retail Distribution Review (RDR) on 31st December 2012 should have ensured this is happening.
Commission from Retail Investment Products was banned and a system of Adviser Charging was introduced, with the cost of advice agreed in advance between adviser and client.
Clarity over costs should have been secured with these two regulatory changes alone.
Unfortunately, it appears that many advice firms are still failing to provide clarity over costs.
A recent investigation by the Financial Conduct Authority (FCA) has found that 73% of the 113 firms it reviewed failed to provide the required information on the cost of advice.
These failings around clarity over costs were widespread, but worst with wealth managers and private banks which performed poorer than other firms in nearly all aspects of the thematic review.
The FCA research found that over half of firms failed to give clients clear upfront generic information on how much their advice might cost. 50% of firms failed to give clients clear confirmation on how much advice would cost them as individuals.
It’s easy to speculate on some of the reasons for these failings.
In some instances, we believe advisers feel embarrassed or insecure about their charges, so attempt to skirt the issue rather than having an upfront conversation about the costs involved.
This could be because they are unsure whether their fees represent good value. It might also be a hangover from the old days of commission where adviser revenue was, in some cases, excessive.
Some advisers continue to operate with what is effectively a commission model, with Adviser Charging simply replacing the old commission levels of 2 or 3% of the amount invested.
Where advisers are working on a speculative basis to provide their advice for ‘free’, in the hope of securing a product sale to generate ‘commission’, you can see why clarity over costs might not be a priority.
Here at Informed Choice, we take a fairly simple approach when it comes to disclosing our fees.
We publish a typical range of fees right here on our website, for all to see.
After we have offered a prospective new client an initial meeting at our expense and without obligation, we write to them with an engagement letter which confirms precisely the fees they will pay, and of course the value they will receive in return.
As we will often explain to our clients, we might not be the cheapest advisers they can find, but we are certainly not the most expensive. What we will always strive to do is deliver excellent value for money.
