Why is the cost of advice so high?

dunstonh

I wouldn't rely on FCA stats as a guide.  Like many stats, you need to apply context.         

Regulatory actions have caused many firms to have minimum investment values for clients.  Some as high as £250k or even £500k.  These types of clients benefit from ongoing servicing and are more likely to be ongoing servicing.    Those firms wont touch the clients that are more suited to transactional business.

General practitioner firms are probably in the minority nowadays and they tend to do around 50/50 in terms of ongoing and transactional.

There is also the issue that many firms are at or near capacity and can pick and choose what clients they want to deal with.  So, many don't advertise and deal with existing servicing clients only with just a bit of natural growth.  Inevitably that means their stats are going to be virtually all ongoing servicing only.

The average age of an IFA (individuals, not IFA firms) is late 50s (although one article said early 60s recently).  So, many have moved from getting new clients to looking after what they have.

You also need to consider how the FCA collects the data.    Say an IFA has 250 servicing clients.  Each does a bed and ISA or ISA top up each year.   That is 250 advice cases under ongoing servicing.  Lets say half do bed & pension or pension top up.  So, that brings it to 375 ongoing advice cases.  The same IFA sees 25 transactional clients who do an ISA each.   The FCA sees that firm doing 375 ongoing service cases and 25 transactional.   

2016 still saw very large volumes of business on a commission basis.  Pre RDR investment bonds were still common and the platform RDR change to unbundled was only just kicking in.  Ongoing servicing with legacy commission products didn't get recorded under FCA stats.   However, as every year goes on, the number of commission legacy cases declines and the person is moved to fee basis (such as bed & ISA from an investment bond - bond stays on commission and the ISA (new or top up) is under fee arrangement).   Today that transaction would be classed as an ongoing servicing case but back then ISA top ups were not treated the same way (you didn't even need a client file if topping up an ISA or GIA using the same funds).   So, it wasn't on the radar in terms of stats and ISA use is probably the dominant product type used.

Idiot_Savant

Ibrahim5 said:

.....90% of customers in 2020 are put on ongoing fee arrangements.....

You make it sound like they're having a gun put to their heads.

Microsoft, Netlfix, Amazon, any amount of security software providers and more would all rather charge ongoing fees than a one-off transactional deal. But, you're free to choose either. Or just walk away.

Ibrahim5

Well it seems pretty clear to me. The commission scandal has been replaced by the ongoing fees scandal. The FCA has identified the problem but will it act? I suspect not. I really think the answer is to make people pay the fees directly. Have an annual meeting with your IFA and then he asks you to pay your £8k fee on your credit card. At least people would really understand how much they were paying.

cfw1994

Ibrahim5 said:

Well it seems pretty clear to me. The commission scandal has been replaced by the ongoing fees scandal. The FCA has identified the problem but will it act? I suspect not. I really think the answer is to make people pay the fees directly. Have an annual meeting with your IFA and then he asks you to pay your £8k fee on your credit card. At least people would really understand how much they were paying.

I reckon renaming 'credit cards' to be 'debt cards' might be more likely to happen first.....that might make people think about what they are spending with.....

Ibrahim5

dunstonh said:

Regulatory actions have caused many firms to have minimum investment values for clients.  Some as high as £250k or even £500k.  These types of clients benefit from ongoing servicing and are more likely to be ongoing servicing.    Those firms wont touch the clients that are more suited to transactional business.

There is also the issue that many firms are at or near capacity and can pick and choose what clients they want to deal with.  So, many don't advertise and deal with existing servicing clients only with just a bit of natural growth.  Inevitably that means their stats are going to be virtually all ongoing servicing only.

The average age of an IFA (individuals, not IFA firms) is late 50s (although one article said early 60s recently).  So, many have moved from getting new clients to looking after what they have.

Sounds like the old fats cats have gorged so much on ongoing fees that they refuse to move. Wake me up if someone has loads of money and agrees to ongoing service. Otherwise just let me snooze.