Paying Ongoing Advisor Charges

bigadaj

dunstonh wrote: »

Yet solicitors and accountants are moving away from hourly too. Fixed fee is by far the most popular.

Other professions do not have a fairness aspect applied to their fees. So, they may have a fixed charge that everyone pays. Advisers can have a fixed charge but have to consider fairness and reduce the charge (or refuse the business) if the charge could be considered too high for the amount being invested.

One big difficulty with hourly rates is calculating the time the work took. The other day I started on a case first thing in the morning and was working on it all day and didnt finish it that day. Not because the work would take that long but because of constant interruptions. You cant just sit there and dedicate x hours of time to someone.

Many advisers work late into the night. So, you do have an evening rate and a daytime rate? Same with Saturday and Sunday work.

Fixed fee can be fine, percentage is less easy to justify as it leads to cross subsidy and is often poor value for those with larger sums.

I'm not aware that ifas have fairness applied to their fees, it's often pointed out on these boards where people complain that they have been over charged that the amount paid for the work isn't covered by any regulator and no formal right to challenge.

The issue you raise for hourly rates is common to all other applications, from a client perspective then if you can't keep track of your time then that's your problem, and yes I'm fully aware of working for multiple clients on a variety and range of tasks and projects with a far greater range of variety.

Again, as far as the client is concerned then when you do the work is up to you, certainly wouldn't be accepting any increased charges for evening or weekend working unless I was specifically requesting this to be done in an unrealistic time period. Assume you wouldn't accept a contract with time is of the essence clause so ultimately undertaking the work is down to your workload and organisation, and failing to deliver on time has no contractual impact, unless it's negligently delayed.

Al.

Bigadaj,

The marketplace is a big one; there'll be someone out there to provide for a multitude of client needs. A working relationship that works has to be acceptable for all parties, not just the client. The client might come first, but they need to come first for the adviser for whom they are best suited. I say this not as an advocate for any one particular method of charging; rather, as a general observation.

dunstonh

I'm not aware that ifas have fairness applied to their fees, it's often pointed out on these boards where people complain that they have been over charged that the amount paid for the work isn't covered by any regulator and no formal right to challenge.

Its difficult to complain you have been overcharged as the regulator does not say what is fair or not fair. It's a bit like HMRC and some of their "guidelines" which allow interpretation. Every firm can set its own level of fairness and its only tested on complaint. I have seen ombudsman decisions on charge complaints against other firms that breach what I would consider fairn level and the ombudsman has rejected the complaint. You don't see many get upheld. Although it does appear the ombudsman will go out of its way on high charge cases to find a reason to uphold elsewhere. It's more a case of being able to justify it to the regulator if they decide to take a look.

Remember that if you employ anyone for any job, if you sign a fee agreement/contract for that, it is very hard to get it overturned as unfair. It has to be very vary unfair and usually tested in court.

Fixed fee can be fine, percentage is less easy to justify as it leads to cross subsidy and is often poor value for those with larger sums.

Cross subsidy has to exist if you wish to service the lower end of the market. However, caps and collars means that you can reduce the level of cross subsidy.

Why is income tax percentage based? Why are the FCA, FSCS, FOS etc fees percentage based? Why are all retail sales added with a percentage profit margin that varies? Someone that goes into Tesco and buys only a tin of beans is a loss maker. Cross subsidy exists in most places.

The issue you raise for hourly rates is common to all other applications, from a client perspective then if you can't keep track of your time then that's your problem, and yes I'm fully aware of working for multiple clients on a variety and range of tasks and projects with a far greater range of variety.

its not a problem as hardly any consumers want an hourly rate.

Again, as far as the client is concerned then when you do the work is up to you, certainly wouldn't be accepting any increased charges for evening or weekend working unless I was specifically requesting this to be done in an unrealistic time period.

Yet many clients can only do evening and weekend contact. Inconvenient hours needs to be priced in somewhere.

Al.

My statement that advice will soon become nearly free? Let me clarify! I didn't mean to suggest that advisers would be out of a job; I implied that the benefit of an adviser would come in other ways, possibly from the value of the relationship. Can I articulate this more fully? No, not really, and that's the problem. It's like picking your way through a minefield, in the fog, with no map.

What is the future of financial advice? No idea. We have some incredibly insightful people (like Dunston who gives his time here freely) but the people who really know where 'fintech' is taking us are the big life companies who apply the principles of vertical integration. Ie; they own you. Good financial advisers though, will always flourish because they have a ready client base with affluent silver surfers and the very wealthy.

I worry though, that those in their twenties will suffer unless spoilers and disrupters, such as Fiver a Day, Money on Toast etc, rain on their parade. I was at an FCA seminar recently and a rep from a major life company congratulated me on my proposition with one breath, and in the next, told me how I needed to be taken down. I reminded him that he had further to fall. We laughed. I know how to take things down.

The likes of Robo advice will never, ever, completely ever, replace a face to face adviser if the client needs are complex. And clients must expect to pay a price that they and the adviser feel is acceptable. Price is one thing, service and relationship are another. As an aside, in today's Mail on Sunday, there's a piece where I say precisely that (below). Is the face to face adviser dead? No way. But we need more than face to face advice to get people investing simply and cost effectively.

http://www.dailymail.co.uk/money/diyinvesting/article-3277148/Wizards-told-invest-pension-trust-robot-look-money.html

JohnRo

Al. wrote: »

The likes of Robo advice will never, ever, completely ever, replace a face to face adviser if the client needs are complex.

Never say never

I don't see why not, if the robo adviser becomes more efficient/comprehensive/complex itself.

The rise of the machines is well under way, driverless transport is on it's way and nothing will stop it as one example. That's like saying a passenger will always need a human driver for a complex journey but that clearly depends only on the limitations of the robot driver.

dunstonh

Robo will come more into play but existing adviser firms are now entering that market.

As that Daily Mail article says, the current players only have tens of millions under management. That is less than a Typical single small local IFA firm. It will grow but IFAs with existing client banks could move a lot of clients with smaller amounts onto their robo advice proposition and focus more on their high net worth clients more. That can be done without running up millions of pounds of losses each year which some of the robo players have done.

Al.

JohnRo wrote: »

Never say never

I don't see why not, if the robo adviser becomes more efficient/comprehensive/complex itself.

The rise of the machines is well under way, driverless transport is on it's way and nothing will stop it as one example. That's like saying a passenger will always need a human driver for a complex journey but that clearly depends only on the limitations of the robot driver.

It might do, at some point in the future, but for now.. I don't think so.

Al.

dunstonh wrote: »

Robo will come more into play but existing adviser firms are now entering that market.

As that Daily Mail article says, the current players only have tens of millions under management. That is less than a Typical single small local IFA firm. It will grow but IFAs with existing client banks could move a lot of clients with smaller amounts onto their robo advice proposition and focus more on their high net worth clients more. That can be done without running up millions of pounds of losses each year which some of the robo players have done.

It's going to be another way to service an old 'bronze' style service option. How will that play out I wonder?

dunstonh

Al. wrote: »

It's going to be another way to service an old 'bronze' style service option. How will that play out I wonder?

Probably quite well. You will have many clients that would have been dumped by their adviser under the sunset clause who can be moved onto robo-advice. Those people only had occasional adviser contact and that will continue so they will be happy. The adviser can earn an ongoing amount which keeps them happy and the govt can be happy as it can say it has solved the advice gap.

When all the current robo-advice only companies have equivalent assets under management equal to that of just one IFA, they have a very long way to go. A number of those robo-advice companies are running significant losses.

I suspect robo-advice will eat into the adviser share but more natural than aggressive. There are less advisers today and fewer younger ones coming through. So, advisers will age with their clients whilst younger consumers will be drawn more to robo-advice. Advisers will move chunks of people onto robo-advice and continue to cherry pick for more bespoke advice. My guess is that platforms have a greater risk of business loss. However, some of those will either move to robo-advice themselves or expand their white labelled options and try and get IFAs to use them as their platform of choice for robo-advice.

Al.

The platforms and consolidators will be exposed when all that business they bought on at 2% TER, can be had elsewhere much cheaply. If you're running a 2.75 - 4.00% TER account with HL or a DFM and stop to think.. why would most people stay with them?

If advisers buy in a Robo and try to run it as a bronze option, they'll struggle. It won't be far off what they (should?) have probably been doing post RDR anyway, if anything. The likes of Aegon and OM are nicely placed to capitalise. Those who were orphaned by the banks and who have never had the money or the inclination to buy advice will appeal to Robo propositions. The evolution for existing advisers will be, I imagine, resemble a gentle glide slope.