But some argue a one-size-fits-all system is not workable, says Jeff Salway
People are being deterred from taking financial advice because firms still don’t make it sufficiently clear how much they would have to pay for it, a report published today claims. (SAT)
Independent financial advisers (IFAs) must be more open with their fees and charges or face regulatory action forcing them to disclose more details upfront, according to consumer group Which?.
Its analysis of 500 IFA websites found just 151 that publish their fees and charges online, while most of those that claim to show their fees provide too little detail for people to understand what they would pay.
Just 2 per cent of the sites examined publish what Which? considered “genuinely useful information”, such as a clear breakdown of charges, while only 33 sites allowed visitors to download a key facts document.
There is currently no regulatory requirement for firms to disclose fees on their website, and in some cases there are valid commercial reasons why a firm would not do so. Displaying fees online is instead considered “best practice” by the Financial Conduct Authority (FCA).
But that doesn’t go far enough, said Which?. It is calling for all IFAs to be forced to disclose charging structures on their websites to give prospective customers an idea of the likely cost and so enable them to shop around more effectively.
Richard Lloyd, executive director at Which?, said: “Paying for financial advice could be one of the best investments people can make, especially if they are taking advantage of the new pension freedoms, but a lack of transparency on fees could put them off at the first hurdle.”
The report met with a mixed reception from leading financial advisers in Scotland.
Paul Lothian, co-director of Verus Wealth in Dundee, is in favour of disclosure and said his firm was “very upfront and transparent” when it comes to fees. “Our website details our standard fee structure and (in our proposal document) prospective clients are given a client-specific disclosure of all and any initial and ongoing fees (in both in percentage terms where applicable, and in pound terms),” he said.
Lothian, a chartered financial planner and certified financial planner, said that it’s also made clear to clients when they will get in return for the agreed fees, both in terms of initial and ongoing service.
However Tom Munro, owner of Tom Munro Financial Solutions in Larbert, described the Which? call for mandatory online fee disclosure as “utterly ridiculous”. He pointed out that all decent advisers offer a free initial meeting where the different service levels and costs and discussed.
“How on earth can anyone select a service level without first engaging with the adviser to talk through the options relating to their personal circumstances, finances, tax position and so on? It’s like asking a builder to guarantee the final cost for building a house without seeing the site plans,” he said.
Alan Dick, principal of Forty Two Wealth Management in Glasgow, said he would “love to find a way” to ensure full disclosure online. However he remains unconvinced that a one-size-fits-all requirement would work.
“I have always been a big supporter of fee transparency and have been quite vocal on the subject over the years,” said Dick. “My immediate reaction is that this sounds like a great idea and I’m all for it, but I don’t think it is quite that simple in the real world.”
That’s because of the difference between cost and value, he explained.
“Displaying fees on a website certainly would help explain the cost but in order to help with a value comparison it is essential that customers fully understand what they are paying for,” he said.
“But it is very difficult to articulate the difference between simple transactions advice and comprehensive financial planning. It is, however, relatively easy to demonstrate face-to-face.”
Adviser fee disclosure has been on the FCA’s radar for some time. A review published last December said that while there had been some improvement, many firms were “still failing to correctly disclose the total cost of ongoing services in cash terms, or not providing an approximation of how long services may take when quoting hourly rates”.
Lothian said: “Firms can have no valid reasons not to fully and clearly disclose all costs and fees, but the FCA found that the quality of disclosure varied hugely. We read the FCA guidance on the subject and made sure we were in full compliance.”
Anyone looking for financial advice should steer clear of firms that don’t willingly and fully disclose all their costs and fees, said Lothian.
“Do not engage with a firm until you fully understand and are happy with the level of such fees.”