"The regulator has never provided specific terms around adviser charging, which may explain why there is such a wide range of charging structures in our profession."
NMBA questioned members on how they view the range of charging structures offered to clients across the sector. Amongst those who felt that some clients are being overcharged by their advisers, the main concerns were around high fees for initial and ongoing service; overcharging wealthier clients and charging for outsourced work.
However, 53% of advisers surveyed did not believe that clients are overpaying and that many charging structures do not fully reflect the amount of work involved in providing a quality, bespoke advice proposition, which satisfies regulatory requirements.
Tom Hegarty, Managing Director of the NMBA said: “The regulator has never provided specific terms around adviser charging, which may explain why there is such a wide range of charging structures in our profession. At NMBA Best Practice meetings, this topic often provokes healthy debate and our findings demonstrate that there is a distinct lack of consistency across the industry.
“Ahead of the RDR, “three plus a half” emerged as a popular pricing standard, although this linear scale is often now seen as unfair, especially for those with larger ‘pots’, despite the argument that the adviser is taking on a higher risk. Alternatively, an hourly rate is sometimes deemed as more appropriate, but, unsurprisingly, these costs vary greatly across the sector - depending on advisers’ locations, overheads, regulatory costs etc. Indeed, many advisers feel they don’t charge enough for the time and service they provide.
“The discrepancy across the industry does, of course, make it difficult for customers to judge whether they are paying suitable charges for the value of advice they receive. However, despite the varied offerings, what was agreed across our member base was the value of the adviser-client relationship, where trust and personal service are seen as paramount.
“While ‘fairness’ is a subjective term, the principles of TCF must apply across all clients, while also ensuring that advice businesses can remain profitable. To avoid any further industry ‘finger-pointing’, we recommend that all charging structures should be designed with the customers’ interests at its heart and that measures are put in place to minimise any potential conflicts of interest. Our industry provides a valuable service and it’s time to ensure that the strength of our relationships with our clients and the advice we provide are value for money, for both the client and adviser.”
