Post RDR advice is in a better place: 3
As the FCA published its RDR interim reviews, Keith Richards, CEO of the Personal Finance Society (PFS) gave us his views on how RDR has affected adviser businesses and the development of financial adviser charging.
ABR: What will financial adviser charging look like in three years time?
Keith Richards: We’re in an evolutionary process but as the confidence grows among advisers in charging for the value of their service, we are going to see a much clearer move to charging the client directly through a range of options. Whether percentage or fixed fees or flat fees, there will be a whole range of options available depending on the service provided.
I think as we move on advisers could transition to a pure fee based model. We are already seeing plenty of firms using not just a percentage of funds invested but also flat fee structures for part or all the services they provide.
If you talk about a flat fee some advisers think that infers that they should reduce the amount or cap the amount that they earn. That’s not the case. Some firms actually introduce a fixed fee for part of the advice process, for example, the initial financial plan, and then if the client wants them to go on to do more work that comes into the more traditional fee scale of percentage of funds invested.
In this way the fixed fee can help bring down the initial barrier to engagement. Once clients have engaged and can see the value of the adviser’s service then invariably they are quite happy to agree the normal structure ongoing.
There is no doubt also, that some of the developments are being advanced by a fear of further regulation and that the control will be taken out of advisers’ hands; so sometimes fear is a healthy motivator.
There are developments in Europe, of course, and the ongoing question around whether ultimately the FCA will ban the facilitation of charging. But do I think that will derail the adviser community? No, I don’t; I think it is now mature enough to respond and will probably drive the agenda going forward.
Overall, I think we are going to see an interesting evolution over time.
The PFS is in the final stages of developing a programme of best practice guidance around fee charging as well as areas such as due diligence, suitability and disclosure. The first module on Adviser Charging will be launched in Q1, 2015.
Keep an eye on adviserbr.wpengine.com for more interviews with Keith Richards.
Visit the Personal Finance Society website