Should advisers publish charges on their website? The pros and cons

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Sat at home on Saturday morning I read an article explaining that Which? had surveyed 500 IFA websites and found that the vast majority gave little or no information about fees and charges.

“No surprise there” I thought, after all I wrote an article a few weeks ago outlining the 12 things advisers must include on their website and fees / charges was not one of them.

I then took to Twitter, asking the question “Should advisers include their fees and charges on their website?” 48 hours later, as I sit down to write this article, the debate rumbles on.

Having listened to a range of opinions from advisers, commentators and ‘gurus’, I thought I’d try summarise the pros and cons of advisers publishing fees on their website.

Pension Charges – why we should all care

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The debate on pensions charges is in danger of becoming a political football where decisions are more about trumping ‘the other lot’ than they are about the interests of people saving in pensions.

On the one hand, I am hugely sympathetic with the argument that pensions charges have been excessive and that investors simply have not had a fair deal in the past. This is even more important when the choice of a company scheme lies in the hands of the company not the individual investor.

Research published by the Pensions Policy Institute showed that charges can make a huge difference in the final amount of cash available for retirement.

RDR really is a journey

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Sometimes in life you have to look beyond rules, norms and custom in order to see clearly why we do things the way that we do.

For the first few years of the M1, there were no speed limits, probably because most cars of the era were simply not capable of very high speeds. It was a series of high profile incidents involving powerful cars conducting speed tests which finally alerted the government to the dangers of the growing motorway system and the 70mph limit was born.

Is simple and fair pricing possible?

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Like most people, I want to know that I’m paying a fair price for what I’m getting. But pricing is not always fair or simple. Often it’s one or the other, but can it be both?

Pricing up a car

Most markets have different ways for building up the costs for a customer.

Take buying a new car, where you tend to get a base price, which varies depending on the make and model of the car.

Rebates, discounts and obfuscation

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Right across the financial services industry, there are examples of pricing which are designed to mislead. The cheap mortgage deal that comes with a huge “arrangement” fee. The savings account where most of the return is a temporary “bonus” rate. The cheap insurance deals which rely upon customers’ reluctance to switch every year.

Investment fund pricing has been shrouded in mystery for too long. The truth is that consumers are paying too much for the very thing that they think they’re buying (and historically too much for things they didn’t know they were buying).

Lock and load – how the big distributors exploit their customers

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John Wayne immortalised the phrase “lock and load” in his 1949 classic film, The Sands of Iwo Jima. It has come to symbolise a kind of bravado associated with firearms and the military.

In today’s financial marketplace, the term can be used to describe a very different business strategy. The holy grail for any financial product manufacturer is to control a distribution channel where the level of price sensitivity is low and to lay off any regulatory liability from poor advice.

The independent channel has proved to be highly resistant to any control and competition has ensured that, as far as is possible in a market with low price visibility, product margins have remained stubbornly low.

Segmentation – the Emperor’s new clothes?

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Every day I seem to read another article about the advice profession which blindly refers to segmentation as the key to the future IFA practice. At the risk of flying in the face of accepted orthodoxy, I am going to argue that this is a gross over complication of what is a simple exercise in commercial management.

Historically, many advisers have been happy to advise clients based upon the sure knowledge that the total amount of commission earned would provide a good income after costs have been deducted. Post RDR advisers will need to have a plan to deal with those clients whose fees do not cover the cost of giving advice. As I see it there are 3 simple choices:

Moving to Adviser Charging – All a bit of a mess

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(Previously) Bundled Platforms

At one stage I thought the migration to Adviser Charging might actually be alright on the night.

Having digested the FSA policy statements, I had a pretty clear view of the world to come. It was all pretty easy really. At the next ‘advice event’ with each client, the adviser would explain his post-RDR menu of services and agree (or reconfirm) the level of service and associated cost; the client would instruct accordingly and the adviser would either invoice the client for ‘adviser charges’ or take their instruction for a product provider to ‘facilitate’ the payment of adviser charges. Easy.

Scrapes, skims and tickles

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When I started working in a bank 35 years ago, I was taught that the priority was to provide a great service to the bank’s customers. There was no pressure to “sell” extra products and any applications to borrow money were analysed carefully. The thought that an officer of the bank could sell a product which was unsuitable was just unthinkable.

So where did it all go wrong? Over the succeeding 2 decades, there has been an inexorable process of commercialisation. Profit growth, return on capital and executive remuneration became the new alters upon which bankers worshipped and this has fundamentally corrupted the banking profession.

If the love of money is the root of all evil then today’s banks are egregious examples of that statement.

Sustainable?

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The Honister debacle has yet again highlighted the folly of traditional networks’ recruitment practices. In an attempt to staunch the loss of advisers that they always experience and which this year is likely to be worse than ever, the big networks have fallen over themselves to offer golden hellos, discounted rates and the usual cocktail of (to be broken) promises.

I am amazed that loss making businesses still believe that the route to profitability is to attract more customers by cutting prices and offering incentives. Or is it simply desperation driven by the scale ambitions of their provider owners? Or is it perhaps that they see an opportunity to corral more advisers into their multi-ties?

Whatever the justification, advisers should be very wary.