1 Comment 1 Commentby Niko Kloeten
Advisers in the UK have come under fire from a consumer group for their reluctance to disclose their fees over the phone or on their websites.
The group, named Which?, mystery shopped 30 financial advisers, asking how much it would cost for advice on investing a £60,000 ($120,300) inheritance.
It found only 14 of the 30 were prepared to divulge their fees over the phone.
The survey came a year after the implementation of the Retail Distribution Review, a major regulatory change that banned advisers being paid commissions by investment product providers.
"Many advisers told our researchers that their charging system was much easier to explain face-to-face, while some suggested it was impossible to establish costs without more detail," Which? said.
This made it difficult for consumers to shop around for advice, according to the group, which wants all financial advisers in the UK to publish a full ‘menu’ of fees online, and is calling for regulation compelling this outcome if its call isn’t met.
But New Zealand financial industry consultant Tony Vidler said forcing advisers to advertise their fees wouldn’t be a magic bullet for consumers. “Having pricing can be as misleading as not having pricing,” he said.
“The problem with hourly fees is customers have no idea how long an engagement will be, so it doesn’t tell you anything. And if you do a price per plan, the adviser is taking a real risk upfront as he doesn’t know he complex the engagement will be.”
Vidler says it’s not just British advisers who are unwilling to advertise their fees, and he believes a survey in this country would probably yield comparable results.
“I think there’s a similar tendency in New Zealand for very few advisers to disclose on their website or advertising material,” he said. “That would be due to the style of regulation; we have a fundamentally different style of regulation to the UK.”
Compliance specialist Barry Read of IDS Limited said advisers’ caution quoting fees over the phone was understandable.
“It would be very difficult if not impossible to give the client an accurate idea of fees and costs because it would end up depending on the agreed scope of engagement.”
Read said putting adviser fee schedules online wouldn’t be hugely difficult, but consumers might not know what level of advice they required.
“It’s not like they’re going to ring someone up and go ‘can you give me some class advice on $60,000?’ There’s a continuum of advice from no advice to a full financial plan and advisers need to know where on that continuum someone would be.”
Niko Kloeten can be contacted at niko@goodreturns.co.nz
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The obvious reason that advisers don’t like disclosing fees is that they are much too high. Everything else is noise. For the record I am not taking any new clients and our fees are disclosed on our website.