Despite the arrival of the Financial Conduct Authority's consumer duty rules (already facing revision), the complexities of charging are too often shrouded in mystery – at least to the average investor.
Yet hidden fees have been problematic for decades, not only for consumer but at an institutional and wholesale level too; an easy way to rake-off profits from unsuspecting consumers and even professional investors.
Indeed, 30 years on I still remember vividly my ill-fated screen test for BBC Two’s now defunct Working lunch in 1994. I unearthed dozens of extras and all sorts of dirty tricks that are thankfully no more.
Much still remains to be done; today in the institutional market, consultancies like Isio and Hymans Robertson have shown how benchmarking fees with competitors and consolidating can shave off up around 40 per cent of institutional investment fees.
In the retail space, no one, not even advisers, has the same buying power. The FCA is belatedly trying to improve the lot of the ordinary investing public with its consumer duty standard. In a blaze of publicity, this came into force on July 31 2023.
The aim was to provide better protection. Yet the majority (84 per cent) of consumers report no improvement, according to Smart Money research.
At the time, the FCA said it hoped it would:
- see an end to rip-off charges and fees;
- make it as easy to switch or cancel products as it was to take them out in the first place;
- provide helpful and accessible customer support – not making people wait so long for an answer that they give up;
- provide timely and clear information that people can understand about products and services so consumers can make good financial decisions, rather than burying key information in lengthy terms and conditions that few have the time to read;
- provide products and services that are right for their customers; and
- focus on the real and diverse needs of their customers, including those in vulnerable circumstances, at every stage and in each interaction.
We have not yet reached this nirvana. There were the few pitch perfect advisers who did not need to make a single change to their working practice following the new duty.
Perhaps these rules, far from being possibly relaxed, are not tough enough. Do some advisers still treat investors like cash cows?
Admittedly, the FCA already requires investment advisers to inform consumers of charges up front, using some form of price list or tariff (confirming the specific amount to be paid later).
Perhaps IFAs should take a leaf out of the dentists’ book. The General Dental Council requires all dentists to display their charges on their website, not many advisers are so explicit.
Even as an experienced financial journalist, it came as a shock to me that VAT was extra – advisers loudly trumpeted the 1 per cent charge, not the extra VAT boosting the management fee to 1.2 per cent.
Why not have a few simple worked examples of how a 1 per cent charge (including VAT) would cost in pounds and pence over, say five or 10 years?
Such transparency might even bring in more clients, especially if alongside the charges there was a similar box to show the value of advice and the difference in pounds and pence advice has made to real live clients (with the necessary regulatory caveats). Trumpet your skills to the rooftops. No one else will.
Here are three charging scenarios that advisers could adapt to their own websites so all their clients have a good idea in pounds and pence what deceptively beguiling low percentage charges mean in real life.
