What the Which? survey says about the image of IFAs

Which? (I’m sure you don’t need me to add the tag line ‘the consumer association’) has surveyed the cost of financial advice in their latest edition. It makes interesting reading.

Their web site states “Which? exists to make people as powerful as the organisations that affect their lives”. I think that’s a brilliant summary of their activities, and the article should be read with it in mind. They’re not out to do us favours.

It came as a pleasant surprise to realise that in many ways they support IFAs. For example, they start out by saying “When planning your financial future, independent financial advice could be the best investment you ever make.” They then ignore restricted advisers altogether and survey IFAs (I do appreciate there will be many restricted advisers who could argue this point, but perhaps we can keep that for another blog).

In one column the Which? money expert is extremely complimentary of IFAs and in particular the general response to RDR.

But it’s not all good news. The article highlights the disparity between how firms charge (average fee quoted for buying an annuity with £100k pension was £1,800, but largest was £5,000). It also stresses the importance of ongoing reviews and the wide range of percentage based management fees.

It doesn’t really touch on the service received. For example, no distinction is made between a firm charging 1%pa and providing a proactive reviewing service, and a firm charging 0.5%pa who sees its clients only when asked to. But then, the clue is in the title of the article. It’s about cost.

Which? surveyed 200 IFAs and mystery shopped 30. Not a huge sample, but nevertheless there was a theme. A general caginess about charges from the IFA firms. For example they included a series of comments from IFAs who wouldn’t provide information about their charges.

Now I think this is fair enough. It is very difficult to provide a price without having met someone, as the article does say, in fairness. But it is possible to meet half way, for example to give an indication of hourly rates, or perhaps an estimate for a typical service. Yet half of the firms surveyed refused to give any idea of cost.

I’ve written blogs and made comments on this site about the benefits of logging the time of staff and having some sort of relationship between the time taken to do a job and the fee charged. Let’s call it transparency. I know many others disagree. They prefer to charge based on value. I see this as charging what you think you can get away with. They would say it is charging for what they feel they are worth.

As with all arguments, both sides make sense. However, the Which? research sets out to be sympathetic but comes up against this lack of transparency. It doesn’t look good. Many clients will surely feel the same. For many people their first experience of dealing with an IFA will be one in which they are confused by charges.

Which? recommends that its subscribers should always negotiate the fee. I’m not sure it is ideal to start what should be a trusting and long term relationship by haggling over price. A firm whose charges are transparent doesn’t have the same pressure to strike a bargain as one whose fixed fee has an unclear basis.

Whether charging by time, value, experience or throwing darts at a dartboard, customers of IFAs are increasingly going to be asking for some kind of justification of charges. Indeed, I believe this is implicit in the RDR and Treating Customers Fairly. I don’t think ‘Because I’m worth it’ is going to be enough any more.

Chris Budd recently published his first novel. More information here 



4 thoughts on “What the Which? survey says about the image of IFAs

  • Its funny how we all see the same thing differently in our industry.
    We changed our business model in 2003 to try and create a more predictable and secure income. We had no thoughts of imitating our accountant or our lawyer as their incomes came as a result of statute and were transactional.
    After a lifetime of selling we wanted to have something that people could buy without a salesperson being involved and which would generate referrals on its merit rather than on the traditional route of individuals being recommended to individuals usually for intangible warm and fuzzy reasons.
    We had looked at using commission offset but felt it was simply an attempt to misrepresent ourselves and to mislead potential clients.
    So long before the RDR was even a twinkle in anyone’s eye we came up with a recurring income model based on Transact using the principles of the Sandler Report which advocated separating out the cost of advice and using Asset Allocation as the basis of investment advice.
    From the beginning we used our website to make transparency the bedrock of our business as we thought this would eliminate surprises for our clients and disruption to our business.
    We decided what we would do and how much we would have to charge to make a good living and a profit. Our business model was then exposed to our existing clients and to the world in general via our website.
    We have been told that our model is a one size fits all but in our view having one model and one clear charging structure means that people can decide for themselves if what we do suits them and allows us to make sure that we do what we do to in the very best possible manner.
    The transparency of the Transact process and our model means that clients became aware as never before of what it is costing them to have us in their financial arrangements. They have the choice to remove us from their affairs if they decide we do not give value and we have the ongoing pressure of reinforcing the perception of value each and every month as they pay us.
    Our clients can see what they get from us as well as what we charge which is how it should be after all.

  • Sorry I forgot the most important feature we wanted in our model which was that it should be scalable and allow us to grow old in a disgraceful way !!

  • Frustrating that Which? doesnt ask about the cost of financial advice, but is hooked on products. It’s no surprise that there was a big discrepancy in cost when they asked what people would charge if a client for buying an annuity with £100k pension.

    For me, that’s not where advice starts, and even if it does, you still have to check that buying an annuity is the right thing for the client to do.

    I think they may have got a better answer if they had started with a more realistic scenario – like the cost of advising somebody whose only asset at retirement is a pension of £…

  • Another good post Chris and I can see the various points of view. As a consumer I do want to know and understand the costs of things I purchase. As an adviser I want to know what I am being asked to do before I put a price out there that might mislead or scare off a client. Will this ever be resolved satisfactorily? I am not so sure.

    Being cagey about fees over the phone is bad for business and unprofessional, so we all need to be mindful of how we address this issue for new enquiries. However, I think a significant percentage of the population will accept that a business can’t quote on a job until they are clear on what they are being asked to do and will come in for a first meeting to explain and explore their financial position with a skilled adviser.

    I like Phil Melville’s point too, that they put their model out there and clients self select. I think this debate leads to the same conclusion; that some firms will quote hourly rates or fee’s openly and let people decide, while other’s will continue to ask for an initial discussion before getting into that area and then be totally transparent in their explanation of fees and charges.

    I support the work that Which? do and all challenges to our methods provide us with points of learning and to question ourselves more deeply so that we may get to an approach that works for each of us. As I said in one of my previous articles on pricing, the bottom line is that each business must have a rationale and believe strongly in their heart of hearts in how they charge for their services. In a free market you are bound to get multiple approaches to pricing and the market will decide which approach it prefers over time (or multiple models will exist serving consumers with different preferences).


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