IFA raising charges - unfairly?

tattenham600

Hello, I've finally decided to post after several years lurking and learning.

Three years ago I decided to take investment advice from a reputable national IFA firm. In that time, apart from the charge for initial advice, I've been charged 0.5% pa. There were no additional fees for annually switching OEICs to take advantage of personal CGT allowances.

Now my IFA insists that I pay an additional 1% fee of the amount switched for all switches going forwards.

The increased charges are within the somewhat loose contract terms that I signed up to, but my expectation has been set and reinforced by my experience over the past three years.

The increase seems unfair to me.

Is it common practice in the industry to try to hike charges a few years after getting a new client on board? Should I raise this case with the FCA?

Look forward to hearing your thoughts.

atush

Sounds like you need a new IFA?

dunstonh

Now my IFA insists that I pay an additional 1% fee of the amount switched for all switches going forwards.

Most advisers either charge by the transaction or an overriding ongoing charge (which would not have switching charge).

i.e. no annual ongoing charge but only charged when there is a switch vs paying an annual ongoing charge but no switching charges.

Is it common practice in the industry to try to hike charges a few years after getting a new client on board?

Depends on what service standard the client wants. The FCA encourages firms to move people between service propositions as their requirements change. There is nothing wrong with the principle.

The FCA have also issued several reviews post RDR and most firms would have amended their fee agreements/terms multiple times to reflect the reviews (the later ones came with best practice examples as well as poor practice examples)

Should I raise this case with the FCA?

The FCA does not deal with consumer issues. Plus, it is not a price regulator. Firms are free to price their services as they see fit as long as it is clear and reasonable.

If you dont like it then shop around.

Personally, I think if you are paying an ongoing servicing charge based on the amount under investment then its wrong to charge a switching charge. However, that is an opinion and there is nothing that says a firm cannot do this.

kidmugsy

"Unfair" is the wrong word unless there's an attempt to impose the charges retrospectively. If you think they're charging too much, go shopping.

gadgetmind

tattenham600 wrote: »

Now my IFA insists that I pay an additional 1% fee of the amount switched for all switches going forwards.

An IFA would usually do these switches from that 0.5% trail, but they are perfectly within their rights to ask for more, just as you're perfectly free to tell them to stuff their price increase and vote with your feet.

tattenham600

Much obliged for all the opinions above.

I have considered a new IFA but I feel somewhat trapped. With a new IFA, I would expect to get hit for a 1% initial advice fee. That's about 20 times the potential saving of having no annual switching charge and doesn't really make financial sense. Even if I did move to a new IFA, what's to stop the new IFA trying the same trick in another three years time? That's the bit that really frustrates me.

Most advisers either charge by the transaction or an overriding ongoing charge (which would not have switching charge).

Seems my IFA wants the best of both worlds. I had an unintentional glimpse of the level of initial, switching and ongoing charges that his other clients pay. Most seem to get hit for both switching and ongoing. It's a pretty big firm so I assumed this was the norm and that I had negotiated a good deal at the outset.

Depends on what service standard the client wants. The FCA encourages firms to move people between service propositions as their requirements change. There is nothing wrong with the principle.

I'm already on their top/premier service and my requirements have not changed.

The FCA have also issued several reviews post RDR and most firms would have amended their fee agreements/terms multiple times to reflect the reviews (the later ones came with best practice examples as well as poor practice examples)

This is one of the 'justifications' for the increase.


Thanks again for your thoughts and suggestions. I suspect I'll stay put but I am not happy at present.

dunstonh

With a new IFA, I would expect to get hit for a 1% initial advice fee.

Not necessarily. If your portfolio is a decent size, many IFAs will be more interested in the ongoing servicing rather than a one off initial hit. Especially if all it takes is an agency transfer and a portfolio adjustment. That is one of the advantages of modern platforms. You can change the servicing adviser without changing your platform and accounts within it.

Even if I did move to a new IFA, what's to stop the new IFA trying the same trick in another three years time?

its not a trick. Most advisers do not and will not charge switching fees. The counter argument against switching charges is that you only generate an income if you switch funds. That then creates a perception for bias which could lead to you of being accused of doing a fund switch to earn yourself money.

This is one of the 'justifications' for the increase.

it may be their justification for change buts its not justification for the increase.

There are only just over 20,000 advisers now (of any type). Over 300,000 just a few decades ago. Many firms, especially larger regional and national firms grew through acquisition. So, you have a situation where many firms have more clients than they are able to reasonably service. So, (picking random figures) if you put your prices up to bring in 50% more revenue but you lose 20% of the business, you are still better off through more income and you have lower costs due to less workload.

The only way they find out they have gone too far is when too many people leave. you are willing to stay. So, that suggests they have not gone too far.

atush

I would shop for a new IFA that will take you on as D says, w/o an upfront fee.

Or tell your IFA you dont like this new charge, think it should be covered by their trail given the size of your portfolio. They might relent.

If you dont ask, you dont get.

gadgetmind

tattenham600 wrote: »

I would expect to get hit for a 1% initial advice fee.

You only get hit by fees that you agree to. Find an IFA who's prepared to provide the service you want at a price you're prepared to pay, or alternatively learn how to DIY. If you're reasonably smart, prepared to do some reading, and know basic spreadsheet skills, the investment side isn't too difficult.

IFAs can add value in areas that you haven't yet really mentioned, but it you don't need this ...

TH1878

I don't charge, or like, switching fees.

It encourages churning of otherwise good investments so the adviser can earn a fee.

Avoid at all costs - the annual fee you pay should cover the cost of the service. I'd be far less worried if they increased that because at least it's more transparent.

tattenham600

Thank you once again for this insight to the advice market. I will now contact other IFAs armed with the knowledge that I don't have to pay initial charges all over again. My investments are on a couple of platforms so Dunston's point about simply changing the servicing adviser applies too.

I shouldn't have referred to increasing charges after a few years as a "trick" as I now realise that I'm libelling all advisers based on my experiences with one firm.
In defence of my IFA, I value his advice and I am prepared to pay for it. I now have several different kinds of investments and policies, and I feel that my family's finances are in good order for whatever the future brings.

I managed my own portfolio until three years ago at which point I realised it wasn't as tax efficient as it should be.

I wrote a letter to my IFA stating why I believed the hike was unreasonable. When we met to discuss it, he admitted that I made good points (including the churning point) but stuck to his line that his firm said this is how they were operating with all clients moving forward. He gave some ground by waiving the switching charge for this year.