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Guilty as charged

By Ian Millward, published 25 July 2017.

Why is it that so few financial advice firms are prepared to publicly publish their fees?

When they are occasionally put on the spot the standard response is typically along the lines of ‘what we do is too complex and does not lend itself to a simple and clear structure’. Which seems a little odd when you consider that, until a few short years ago, the overwhelming number of advisers worked perfectly happily on commission – which may have encouraged all sorts of poor practice but you cannot argue that it was a one size fits all fee.

Call me cynical (which actually I’m generally not) but I believe the real reason most advisers are guarded around disclosing charges is because they know how bad they look. A 2%-3% upfront charge on a portfolio of £100,000 may be just about palatable (although still high in our opinion), but how can anyone justify a similar charge at £250,000, £500,000 or even a million? Many advisers probably test the waters when they’re in front of a client. In other words, their typical fee structure is much closer to ‘whatever I think I can get away with’.

Am I being harsh? I’ll give you to two very recent examples. I spoke to a potential client earlier this week who was quoted a 2% initial charge to transfer £450,000 of pensions, i.e. £9,000. When the client rightly resisted, the reply was ‘oh don’t worry about that fee, it’s computer generated. You and I can agree a different fee.’

Another example is a St James’s Place adviser who went back to see an existing client who had just inherited a few hundred thousand pounds. Despite the amounts involved it was not a complex case – all new money to be invested to provide an income so they could enjoy life – that’s it. The initial charge…5%! The client had contacted us for a second opinion and we did the exploratory work and quoted the appropriate fee – as clearly published on our website – in this case a 0.4% initial charge.

And low and behold, when the SJP adviser was confronted with this they miraculously reduced their initial fee to…0.4% - a reduction of over 90%!

Most of us are too polite to ask for a discount or negotiate on fees and, even when you do, most advisers have, over the years, become very adept at dealing with these sorts of questions. But that’s not the point. You shouldn’t have to ask in the first place.

Haggling over the price of a car, house or just about any other purchase is fine. But this is the person you are entrusting with your life’s savings and to help you make important financial decisions. How can you trust them to help you if you can’t even trust them to be clear and fair about their own charges?

All I can say is we do our bit - our charges are fair, clear and we publish them openly. Justin is never afraid to challenge poor practice and speak his mind in the national press. Our message rarely makes us popular with our contemporaries, but we don’t really care. The end of commission was a good thing, but I think the regulator would be disappointed at the progress made on adviser fees since then.