How to combat the FCA’s hard-line on charges
The Financial Conduct Authority (FCA) is continuing its investigation into the service provided by advisers and in particular the way that fees are charged on ongoing services.
As the deadline for implementing changes to satisfy the new Consumer Duty approaches, it’s becoming more apparent that many advice firms will need to amend their charging structure to comply with the new rules.
So what are the main challenges that advice firms are facing, and how can you ensure that you comply with the rules without entirely overhauling your fee structures? Read on to find out.
Demonstrating value for money will be crucial for complying with the new rules
Whatever your view on value for money, it’s here and it’s not going away. As Mark Polson at the LangCat states, “value is subjective and experiential and can’t be measured by you, or me, or regulators or anyone else”.
However, the Consumer Duty regulation states that advisers must charge fees that are representative of the value they provide to clients. This seems to be of particular interest to the FCA when it comes to ongoing fees, so there’s no avoiding it
In 2020, Money Marketing reported that the FCA had found “significant clustering” of advisers’ fees, with most ongoing services being charged at 0.5%, 0.75%, and 1.0%.
The concerning finding was that the FCA was unable to identify “noticeably different features” being offered by advisers charging 1.0% than those charging 0.5%.
It’s clear that, at present, defining value for money in financial advice is tricky, but you will need to do so to satisfy the Consumer Duty regulations. Charging a consistent percentage to all clients regardless of the value of AUM they have with you won’t be enough to tick the box. Similarly, a simple client segmentation illustrated in a report won’t cut the mustard either.
It seems logical that a client who has much more complex affairs, or a wider spread of tax wrappers in use with multiple providers will require more focus than someone who just has a pension on one platform. However, introducing more and more service levels with associated charges will only add complexity, which is unhelpful for everyone.
Different clients want to engage with firms in different ways
The thing is, despite stipulating that firms must offer value for money that is in the clients’ best interests, the FCA maintains that they are not there to set the fees. This is the responsibility of individual firms, who must also demonstrate the value they are providing for their clients.
In fact, the whole point of Consumer Duty is to put the focus on what clients are seeking from their advisers.
So what is it that clients are looking for? The answer can be found in part in EY’s 2021 Global Wealth Research Report, which showed that there is an almost equal mix of clients looking for adviser-led engagement, digital engagement, or a mix of the two.
The survey discovered that 25% of high net worth and 20% of very-high net worth clients preferred to use digital tools over adviser-led communications.
So, if your firm is focusing on providing either digital or adviser-led communications with clients, it’s likely that you are overlooking a middle-ground that could be both lucrative for your firm and offer great value for money for those who are looking for a hybrid approach.
You can read more about the findings of the EY 2021 Global Wealth Research report on our website.
AdviceBridge can help you provide genuine value for money to your clients
One of the ways to comply with Consumer Duty and ensure that your clients receive quality financial advice for affordable prices is to invest in systems that support your firm’s and your clients’ needs. The AdviceBridge platform has been designed with both of these in mind, enabling different charging structures to be used for individual clients, pulling through into analysis and reporting.
1. Reducing admin time will increase valuable face time
The AdviceBridge platform automates many of the repetitive admin tasks required to onboard new clients and provide compliant ongoing services. This typically reduces the time needed to onboard new clients by 75 to 85%.
By automating and reducing the time needed by your staff on these tasks, you can increase the human interaction of serving clients – even if their budgets are lower. Thus, your advisers can focus on building the relationship with their clients and offering true value, not undertaking unvalued admin tasks in the background.
2. Clients can interact with their plan digitally
Clients value the ability to engage with their finances digitally, which the AdviceBridge platform offers through a specially designed interface that shows them everything they need to know. Add to this the app that allows them to view and interact with their plan 24/7 and you’ll be able to offer a fully digital experience for those clients who want it.
3. Lower the barriers to advice for more clients
When costs are lower, you can provide vital financial planning to more people and the value for money of your service will soar.
With the average underlying cost of advice provision being £1543 (Nextwealth), advice firms can now reduce the cost of advice down to under £500. This cost reduction can be split, passing on some of the reduction to the consumer whilst ensuring that you maintain a healthy profit.
Reducing the cost of advice allows you to achieve greater profitability , even on smaller value clients, whilst bringing down the cost for them too.
Not only does this benefit your clients, but it also means your firm will be able to expand its client base and ensure a profitable future.
4. Complement your services with online financial tools for clients
A big part of Consumer Duty is empowering your clients so that they know they can achieve their goals and can make informed decisions about their financial future.
The AdviceBridge platform offers access to a range of online tools that prospective clients can use to gain a better understanding of their financial situation. Existing clients, meanwhile, can use them to help them reach decisions about their spending and saving now, and at retirement.
5. Cashflow forecasting for all clients
Cashflow forecasting is typically reserved for clients with larger budgets, so a percentage of most advisers’ client base will not receive this valuable benefit, although it is highly valued. But using an automated cashflow system which can run scenarios unaided enables this service to benefit all clients regardless of asset or fee size.
Get in touch
If you’d like to learn more about how the AdviceBridge platform could help your firm to comply with the Consumer Duty, please get in touch. Email firstname.lastname@example.org, book a demo, or call us on 020 3925 3850.