Panacea Adviser's Derek Bradley assesses the brave new RDR world.
So, we’re a few weeks into the brave new regulatory world, and already we are seeing the first examples of politico-regulatory “told you so”.
Liberal Democrat MEP and Economic and Monetary Affairs committee chair Sharon Bowles has fired a salvo against the banks suggesting their adviser charges are a “rip-off”. She argues the arrival of the Retail Distribution Review (RDR) has created a system so complicated that the commission option would be easier for consumers to understand. As a result, it is her intention to seek an EU-wide cap on advice fees within current MiFID II talks.
Lloyds is charging an upfront fee starting at 2.5% on the first £300,000 invested; HSBC is asking for an upfront fee of £950 on assets up to £75,000; while Nationwide is charging 3% initial and 0.5% for ongoing advice.
Comment: Just a few weeks in, and…
Bowles is clearly trying to help the consumer but, sadly, she’s a little too late.
I have become increasingly cynical about the intentions and effectiveness of politicians in any face-off with unaccountable regulators and paradoxical regulation. It seems just so much hot air for small and disinterested audiences who have already made their minds up.
Here to stay
For better or worse, the RDR is here to stay, and the RDR is also about free markets, and adviser charging is part of that.
Last December’s Panacea survey of 433 advisers found that advisers would be offering different charging solutions to match differentiated service propositions and some 72% would charge through the product.
Only a quarter were planning to operate an hourly rate and that averaged around £172 per hour. Half were planning to charge a percentage of the amount invested. The charges the banks intend to implement are on the high side, but we have a free market in advice and to suggest a cap shows no understanding of that.
Compared to the banks, adviser charges of this level, if sustainable, would mean that only the seriously ill-informed would consider going to a bank for financial advice.
Politicians and regulators can only assume most consumers are stupid and need to be protected from themselves.
Bowles is quoted as saying that “if the RDR does nothing to stop some high street banks from ripping investors off with astronomical advice charges, then something has to be done”. Consumers are, she said, “not a cash cow to milk to pay the fines and compensation that banks have had to pay for other inappropriate charges and behaviour”.
She may have a point but she is wrong when she says: “Many professionals base charges on an hourly basis for work they have done and, if the initial advice is not worth the money in your eyes, you can take your business elsewhere, but do pay for the work already done.” This is akin to going to a restaurant, eating most of the meal, then declaring you will not pay as you did not like it.
So, Ms Bowles, welcome to the world of fee-based advice.
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