Adviser Charges - the FCA Thematic review 

How difficult can it be? Tell your prospective clients how much you are going to charge them for your advice, generically at first, and then specifically when you have a more concrete idea of their circumstances and the scope of the project. 

Disclosure of costs and charges is not new.  Neither is it a new regulatory concern.  And for those of us who have nothing to hide and who are totally committed to open and transparent relationships with our clients the regulator’s insistence on treating us as though we have something to hide can feel offensive. 

For those of us who have been working on a fee basis for many years, quoting costs in advance, and preparing client-specific client agreements, charging for advice not product sales, there was nothing complicated in the RDR rules on Adviser Charging and disclosure. 

So I ask again: how difficult can it be?

Clearly it’s harder than I could have ever imagined if over 70% of firms surveyed in the second round of RDR post-implementation reviews failed to either specify generic up-front or tailored client-specific adviser charges.   

If you have a clear client segmentation plan and target client then quoting sample costs at a generic level should be straightforward, especially if like most advisers your charging structure is based on a percentage of assets. 

We also know that the FCA is concerned about contingent charging, so it should be easy to make clear that your charges apply whether your client follows your advice or not, or implements on a B2C platform, which means in turn that your revenue is not dependent on (or biased by) a product sale or transfer of assets. 

What is a little bit more complicated is an hourly charging model where your advice costs could vary widely, depending on the complexity of what your clients want.  But it really is possible to quote a typical cost, and you may wish to quote a minimum cost.

But the more interesting aspect of all this is that over 70% of clients do not get to find out either generic up front or tailored client-specific costs of advice before getting the advice that they want. 

If they are shopping around for advisers at all they can’t be doing it on price (which actually doesn’t surprise me, and may not always be a bad thing).  But even if they aren’t shopping around, surely clients are interested in cost?  And if they aren’t they should be. 

So those advisers who have clear initial disclosure documentation and transparent retail client agreements should make sure their clients know how valuable (and rare) it is to have their adviser deliver that level of openness and transparency in their relationship.  

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ValidPath Members should check out Chapter 17 in our BPP on the topic of Information about your firm and service.  You'll need to be logged-in to view this.
Gill Cardy, 10/04/2014