Transparency of adviser fees

I started scribbling this piece before I saw Phil Bray’s excellent and balanced argument. Indeed, I thought of binning it wondering if there is much to add. Unsurprisingly, I cannot resist adding my views.

My intention is to argue from the position of outsider, consumer or layman.

Over the years we have heard debates in many professions, industries and trades on transparency versus opacity; disclosure versus non-disclosure; overt versus covert. I cannot remember a single occasion when the media or court of public opinion found for the non-disclosure argument. In the 80s, there was a battle against commission disclosure – lost. In the 2000s, funds fought charge disclosure – lost. Later in the 2000s an argument to retain commission over transparent fees – lost! Asset managers, fund supermarkets and networks argued for the continuance of under the counter bungs (so-called by Panorama) – lost. Transparency and disclosure occupy the high moral ground. Advisers must continue to follow suit.

Simple question – as a consumer, when you are buying a product or service, do you Google the market and look at, inter alia, cost? Don’t you feel more relaxed engaging with businesses when you know the price is within your parameters? Why is it different for potential customers of adviser firms?

How many times have you heard a question along the lines of, “How many advisers do you know who you would recommend to your best friend’s Mum?” The answer is usually “Not a lot.”

Imagine you are a very good businesswoman, but have no experience of financial planning. How do you find a good adviser? Experts say you should interview three. How do you choose the three? I reckon it is close to impossible.

I tried Unbiased, and MAS, with detailed input. In each case, the top three were quite unsuitable. I know it; the inexperienced would not.

If you doubt me, just try it yourself.

Referral may be a good route, but remember, the greatest number of referrals go to SJP.

Recently, when judging some awards, I looked at the websites of two candidates about whom I had doubts. Both wrote volumes of self praise on the submission, but nowhere on the website could I get a clue about cost. I am not saying this disqualifies them – it does not. However, if I were searching for my own purposes, it would disqualify them.

So, what is the reason for not disclosing?

The almost universal answer is “We need to know the problem/scope/size before quoting a price.”

Yet, over 90% of advisers charge on an ad valorem basis for all or most of their work. When we are researching costs, advisers have no difficulty in explaining their fee schedule to us. I confess, I do wonder why so many quote adviser fees at rates that would frighten Donald Trump, when most work is done by paraplanners.

There is, I believe, genuine fear that would be clients might be put off by the likely cost of advice. This is a legitimate fear, as many consumers do not value advice enough.

There is an assumption by some that consumers will broke on price and buy the cheapest. I think this is presumptuous and vaguely insulting. I know of no evidence to this effect. Consumers are experienced with online enquiries and have multiple criteria.

Is it possible that some advisers are bamboozling their prospects with the supposed complexity of the multi-faceted problem that’s only they can solve, for a modest fee (sic), inadequately disclosed? Perish the thought.

The percentage of the population that employs an IFA is pathetically small, well under 5%, I believe. The main reason for this is lack of trust. Over time, full, clear, disclosure will increase trust.

To conclude my argument, let me tell you a wee tale.

The guest speaker at my rugby club annual dinner was an ex-England international – a large, imposing and persuasive character. As president of the club, I sat next to him. He works for a very large, well-known, restricted advice firm. I asked him how his clients reacted to their charges. He replied that clients are not interested in charges. I was loath to argue!

The industry has argued that charges are not important for years. At last, that argument is being seen for what it is – a lie. Advisers and providers are much more focused on cost and rightly so. There is a lot still to do, and full, open, disclosure of charges on websites is a small but necessary step.


3 thoughts on “Transparency of adviser fees

  • Hi Clive,
    I could not agree more although as I have said elsewhere on this site I still think that the industry has quite a lot of other issues to deal with before it becomes focussed on charges.
    As you know well we work from our home and these days don’t get involved in the industry very much as apart from provider marketing activities there isn’t much going on.
    One of the ways we do try and keep in touch with the industry is to log onto the website of anyone we are reading or hearing about just to try and find out more about them.
    Adviser websites do demonstrate times have changed with the need to get paid by your client rather than by the provider and the challenge this has brought is clearly still the major issue for most when trying to put a face on their activities.
    The current window dressing with unquantifiable things such as Financial Planning, Lifetime Cash Flow modelling or George Kinder stuff is what most think makes their activities complex enough to allow their charges to match what the providers used to pay for product distribution.
    Most firms websites resemble the kind of picture Dickens used to paint of Lawyers offices with pompous, although I have to admit clever, use of the English language to try and create an air of important complexity about their work. Indeed the narrative on most closely resembles the small print used by the industry for decades to confuse and obscure the customer.
    You make a good point about referrals and it is very true that it would be very difficult to refer anyone on the basis of the way most firms describe themselves and their activities.
    I don’t think we should begin by trying to publicise our charges before we can actually illustrate exactly what we do and how it adds value. People are very interested in cost but our industry has spent so much time and effort preventing them from knowing what we cost that in isolation cost has little relevance.
    Sorry my comments are becoming repetitive but unless the industry begins to properly address the task of demonstrating value in a transparent manner we will make no progress at all.

  • I completely agree with the point that we all like to snoop around online and try and figure out what any kind of service/product might cost before we buy it. I disagree, however, that we do this to find out whether or not we can afford that service. It’s not exactly about affordability, is it? It’s about priorities – I’m generalising a little bit, but, if we know we need a service (whether that be service from a financial adviser or a plasterer), we will find the means to pay for it.

    I’d like to stress the bit where I say ‘if we know we need the service’. So, once again, it comes down to value. People need to understand the value of our services.

    Not having the fees on our website will not educate the consumer about the value, but having the fees there will not do it either.

    So, my conclusion is that disclosing our fees on our websites is actually not related to educating consumers about value at all (though I also think it may end up distracting them from what they should be focusing on in the first place).

  • HI Eva,

    I often wonder why we expect the public to understand us when we clearly don’t understand them.

    Most markets work when suppliers provide what people want at a price they are prepared to pay .

    The general philosophy in our industry seems to want to denigrate our potential market because it cant see any value in what we do or in the amount of money we want charge.

    Your post on another piece about the chap who thought you wanted a lot of money for a bit of paper really is how we are perceived and if we want it be different then we have a lot of work to do. The public will not be doing anything to understand us and indeed why should they.


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