Welcome to our blog, the place we get things of our chest. It's a mix of rants and raves, often about fees and the cost of financial advice, along with anything else we think you might find useful.

How the FCA could cut the cost of financial advice

By Justin Modray, published 01 May 2019.

As you will probably have gathered by now, we believe that many financial advisers charge too much for financial advice. Just take a look at Ian’s thoughts on the cost of financial advice.

Is there a worthy reason for this? Nope, not in our opinion.

Why might advisers charge too much?

Like many industries, financial advisers tend to charge as much as they think the market will tolerate. And because the market (consumers) is largely naïve about the cost of financial advice, it’s no surprise financial adviser fees have generally rocketed in recent years.

The unintended consequence of scrapping commissions

Before the FCA scrapped commissions at the end of 2012, advisers typically received 0.50% of investment value as an annual commission, intended as ongoing pay for looking after their clients. Since then, annual advice fees of 1.00% have increasingly become the norm, with many advisers effectively doubling their annual charge.

Scrapping sales commissions was a really positive move, I’ve no doubt that removing the financial incentive for advisers to recommend one product over another has benefitted consumers.

But what about the soaring cost financial advice?

When we launched Candid Financial Advice, our key aim was to provide high quality financial advice at a much lower cost than usual, it seemed an obvious move. Yet over five years later, we still cut a lone figure in an industry that appears more focused on its own self-interest than those of its customers.

It’s clear the financial advice industry won’t reduce the cost of advice on its own accord.

Some good news?

Well, maybe. The FCA is starting a review of the financial advice industry (details here) and cost will almost certainly be in its crosshair.

Before we get too excited, a similar review of the fund management industry has so far done little to reduce cost. But, as an optimist, I’m hoping the FCA will put pressure on financial advisers to charge less.

A simple solution

There’s a really simple way I think the FCA could achieve this - require all financial advisers to display a clear rate card on their websites. As well as specifying their hourly and/or percentage charges, the rate card should also display indicative costs for a range of common scenarios and specify the services that will be provided in return.

It’s not hard, we’ve done this for ages. Yet I can probably count the number of advice firms publishing their charges in this way on one hand. Most choose to avoid giving any indication of what they charge altogether, preferring to save that information until a potential client is sat in front of them and under the control of a carefully scripted sales process.

Empowering customers to easily shop around the cost of financial advice from their armchairs is key to creating more price competition within our industry.