Following on from Phil Young’s excellent article addressing this issue, it is quite clear from the adviser-planner firms we are working with are facing increasingly severe challenges when it comes to maintaining profitable business practice. Not only do we have the sun going down on legacy trail in April 2016, pressure to move to a true client paid remuneration through direct fee charging and moving away from product facilitation but also the ever increasing regulatory fees. Let’s look at one case study:
Despite paying an FSCS levy earlier in the year for Pension claims (in part caused by failed UCIS’s) the annual fees have now also significantly increased. The majority IFA firms pay 10% of total fees. This is likely to increase due to changes in the FSCS charge specifically the Life and Pensions element. An example of the old basis was:
1.01% of all Life & Pensions revenue = FSCS fee
2.94% of all Investment revenue = FSCS fee
The new basis example is:
3.22% of all Life & Pensions revenue = FSCS fee
2.81% of all Investment revenue = FSCS fee
Our ongoing research into the adviser firm initial charge for advising, recommending, arranging and transacting a pension transaction charge is 3% or below of the amount invested for all the work and risk involved. Yet, as we can see, the FSCS now charge a greater percentage (3.22%) of every firms revenue in this area and use this to pay the compensation for other IFA’s failures.
Adding to Phil’s list of strategies to cope with increased levies and APFA’s lobbying we would recommend focusing and refining the proposition. The one key issue that can offset increased fees is value. The value the government see in advice given is immeasurable. In March we held our Retirement Symposium where Dr Ros Altmann the (now) pensions minister spoke of the high value advice plays in the education process for consumers to make informed choices with their pension pots. More details on this can be found here.
We also had the FCA, Michelle Cracknell from TPAS, MAS and 3 industry experts who all agreed well delivered, professional advice is invaluable.
The fact that the Chancellor wants compulsory advice for those with Defined Benefit pots over £30K for example also showcases the value the government see in advice. You can watch the symposium video here.
We then have the customer. We all know if they value something they will pay a premium for it. Yes it’s a subjective issue, yet our retirement research paper shows that when it comes to the crunch and they want advice they are willing to pay. A copy of which you can download here.
It’s back to the old L’Oreal advert, work through your proposition and key financial ratios and charge your clients a premium through direct fees such as retainers and take action, lobby the powers that be for reducing the regulatory fees ….because you’re worth it.