IFA costs and ongoing charges.

dunstonh

LHW99 said:

dunstonh said:

Is a transactional base fee model just not worth the hassle for an IFA due to all the regulatory costs etc?

It depends on the IFA, time of the year, overall workload and business model of the IFA.  

And if there's an 'r' in the month?

Actually, the "r" in the month is not a bad guide.

Cus

dunstonh said:

Is a transactional base fee model just not worth the hassle for an IFA due to all the regulatory costs etc?

It depends on the IFA, time of the year, overall workload and business model of the IFA.  

I noticed you didn't comment on my response about how the investment amount is crucial for the charging model, yet not normally the crucial topic of conversation.
I presume the reality is that since commission is not allowed anymore, the ability to charge a small percentage of total investments is the easier way to earn more per client than you can earn providing transaction based fees.
There must be a significant percentage of an IFA's clients who really don't need a number of services the IFA could provide, yet pay a very significant amount for an ongoing service that is relatively simple once set up, especially when you hear of IFA's who will put all client funds into a managed fund of a wealth management firm yet still continue to charge.
I read that the number of IFA's is decreasing.  I guess this is partly due to retail clients becoming more aware of these details, plus how easy it has become to DIY.
Market forces, people need to earn a living etc so my comments are not a criticism.  I just wonder where the IFA world will be in 20 years.

dunstonh

I presume the reality is that since commission is not allowed anymore, the ability to charge a small percentage of total investments is the easier way to earn more per client than you can earn providing transaction based fees.

Many of the costs an IFA faces are percentage based.  The FCA, FOS, FSCS, MAS etc levies are percentage based.  As are the PI premiums.     

I read that the number of IFA's is decreasing.  I guess this is partly due to retail clients becoming more aware of these details, plus how easy it has become to DIY.

One year of decrease doesn't suggest that.  Indeed, when you consider the rate of consolidation in recent years (similar to what accountants and solicitors went through previously), the drop is actually very small.  here are the numbers of IFA firms:
2016 - 4758
2017 - 4787
2018 - 4791
2019 - 4814
2020 - 4723
2021 - 4727
2022 - 4475

More notable is the decline in restricted firms (which is what most consolidators are). There were 848 in 2016, dropping each year to 470 in 2022.      The consolidators have started to consolidate amongst themselves.

Market forces, people need to earn a living etc so my comments are not a criticism.  I just wonder where the IFA world will be in 20 years.

If consolidators continue as they did with solicitors and accountants, then prices will probably lower. Consumers will be left with fewer firms, most of which will be restricted and generally the wealth management restricted model is the most expensive way.   Yet many of them are very successful and will continue to get people signing up now or in 20 years.