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Which? (I’m sure you don’t need me to add the tag line ‘the consumer association’) has surveyed the cost of financial advice in their latest edition. It makes interesting reading.
Their web site states “Which? exists to make people as powerful as the organisations that affect their lives”. I think that’s a brilliant summary of their activities, and the article should be read with it in mind. They’re not out to do us favours.
It came as a pleasant surprise to realise that in many ways they support IFAs. For example, they start out by saying “When planning your financial future, independent financial advice could be the best investment you ever make.” They then ignore restricted advisers altogether and survey IFAs (I do appreciate there will be many restricted advisers who could argue this point, but perhaps we can keep that for another blog).
In one column the Which? money expert is extremely complimentary of IFAs and in particular the general response to RDR.
But it’s not all good news. The article highlights the disparity between how firms charge (average fee quoted for buying an annuity with £100k pension was £1,800, but largest was £5,000). It also stresses the importance of ongoing reviews and the wide range of percentage based management fees.
It doesn’t really touch on the service received. For example, no distinction is made between a firm charging 1%pa and providing a proactive reviewing service, and a firm charging 0.5%pa who sees its clients only when asked to. But then, the clue is in the title of the article. It’s about cost.
Which? surveyed 200 IFAs and mystery shopped 30. Not a huge sample, but nevertheless there was a theme. A general caginess about charges from the IFA firms. For example they included a series of comments from IFAs who wouldn’t provide information about their charges.
Now I think this is fair enough. It is very difficult to provide a price without having met someone, as the article does say, in fairness. But it is possible to meet half way, for example to give an indication of hourly rates, or perhaps an estimate for a typical service. Yet half of the firms surveyed refused to give any idea of cost.
I’ve written blogs and made comments on this site about the benefits of logging the time of staff and having some sort of relationship between the time taken to do a job and the fee charged. Let’s call it transparency. I know many others disagree. They prefer to charge based on value. I see this as charging what you think you can get away with. They would say it is charging for what they feel they are worth.
As with all arguments, both sides make sense. However, the Which? research sets out to be sympathetic but comes up against this lack of transparency. It doesn’t look good. Many clients will surely feel the same. For many people their first experience of dealing with an IFA will be one in which they are confused by charges.
Which? recommends that its subscribers should always negotiate the fee. I’m not sure it is ideal to start what should be a trusting and long term relationship by haggling over price. A firm whose charges are transparent doesn’t have the same pressure to strike a bargain as one whose fixed fee has an unclear basis.
Whether charging by time, value, experience or throwing darts at a dartboard, customers of IFAs are increasingly going to be asking for some kind of justification of charges. Indeed, I believe this is implicit in the RDR and Treating Customers Fairly. I don’t think ‘Because I’m worth it’ is going to be enough any more.
Chris Budd recently published his first novel. More information here