The discussion around fees is an all too familiar one for advisers and will, in all likelihood, continue to be so for a significant time into the future.
A New Model Adviser article from back in April raised the debate again and met with responses that varied from ‘advisers charge too much’ to ‘the regulator doesn’t know what they are doing’. And those were just the responses from advisers.
To gauge a little of what clients may think, spare a thought for our cousins in Canada. At the start of 2017, the Canadian regulator rolled out the Client Relationship Model Phase 2 (CRM2), showing a desire to catch up with better regulated parts of the financial world. CRM2’s main dictat was that adviser fees had to be expressed in dollar amounts, rather than percentages as they had been previously. It is perhaps to be expected that some clients received a rather nasty shock at the bottom of their newly refreshed statements.
Meanwhile, back in the UK, the FCA stated in August of this year that it would continue its ‘communication programme which will run over the course of 2017 and into 2018’, regarding ongoing fees, suitability and disclosure. This followed a review of ongoing charges, which found that 42% of firms were not meeting disclosure standards. The fact that, in this instance, the FCA refer to a ‘communication programme’ means that further regulation is perhaps not imminent, but it would be a brave adviser who bets against the FCA looking into it soon.
Omitting debate on suitability and disclosure for a moment, there is perhaps a third less talked about area we might refer to as ‘knowledge’. Whilst investment advice may be suitable and the costs disclosed to clients, could they explain their own costs back to someone if asked? Clients may have been told what they pay, but do they actually know what this looks like and how it is calculated? Can they explain the potential implication their fees have on their investment performance?
A recent fictionalised example, this time from the US, highlighted the distinction. A client may be told that they pay 2% overall and be happy with that, but the difference in return with that 2% could be the difference between earning $10 for every dollar invested and $30. As the article puts it to the client (you can read the whole thing here): ‘You put up 100% of the capital, you took 100% of the risk, and you got 33% of the return!’ It’s a dramatic example and many advisers, I’m sure, would argue the ‘100% risk’ point at the very least but, nevertheless, it’s an effective argument.
The difference for clients will be made in conversations of this manner by advisers who exceed suitability and disclosure rules and take the time to really ensure clients know what they are paying for and why. As in many industries, those who exceed client expectations will survive and thrive.
The alternative is to wait for the FCA to act and force a change that would compel firms to create some level of what we have termed ‘knowledge’ with clients. That may be many, many years down the line and the FCA are clearly far from clear on how it will be achieved.
But based on everything we know about sustainable advice businesses, client relationships and the power of knowledge, isn’t it better to make the move now and be one of the leaders of the pack? Clients value transparency and disclosure but, yes, they themselves also value knowledge. Are you currently providing your clients with it?
In 2017, Hubwise relaunched with a focus on seeing things differently to the established platform market. That meant we offered our clients more transparent pricing than the rest of the marketplace. Fairer options on client sovereignty and white labelling, and more choice when it came to investments.
In 2018, we’ll be seeing things differently again.
We believe wholeheartedly in Activity-Based Pricing (ABP). We’ve believed in it all along, mainly because we think it’s a fairer outcome for portfolios across the whole range value. It’s also a better way for clients and advisers to do business. We have already started on this journey by introducing capped platform fees in 2017. In 2018, we’ll be showing you what that looks like in Hubwise, how to implement it and how the wider industry will change because of it.
If you’re interested in seeing things differently too, you can book some time to speak with our ‘Head of Propositions’ here.