An important new regime that requires advisors and other financial firms to itemise and measure their whole value chain is going to cost money. A survey by a large UK wealth management house seeks to work out what respondents think will happen to fees.
More than half (55 per cent) of 339 financial planners in the UK surveyed by Quilter don't expect to put up fees because of costs associated with the new Consumer Duty regime, which takes effect from 31 July. However, almost a third (32 per cent) of them do expect to hike fees.
Some 9 per cent of the advisors predict fees will drop, the survey found.
Quilter’s research, gathered by Boring Money, shows that more directly authorised financial planners (38 per cent) are concerned that they will need to increase their prices due to the requirements of Consumer Duty compared with those planners who are part of a network (22 per cent).
The Consumer Duty regime, introduced by the Financial Conduct Authority, states that firms should provide customers with products and services that meet their needs and offer fair value. Customers should receive communications which they can understand. They should get the customer support they need when they need it. There are three broad legs to the Duty: A new Principle for Business: the Consumer Principle which requires firms to "act to deliver good outcomes for retail customers"; there’s a "Cross-cutting rule" setting out three overarching behavioural expectations that apply across all areas of firm conduct, and third, there are "Four Outcomes," which are rules and guidance setting more detailed expectations for firms. (See an editorial on the topic.)
In its study, Quilter said the research also shows that financial advisors may feel they have no choice but to increase fees to maintain profitability as 44 per cent said they believed profitability would decline as a result of having to meet the requirements of the Consumer Duty, while only 5 per cent said that profitability of their firm would increase.
Quilter noted that the Duty has prompted advice firms to review their fee models to ensure that they represent fair value. As part of this, firms are expected to understand and clearly define their target markets to ensure that fees are suitability structured for the services being offered.
“While for some this process will be a simple task, others will likely recognise a need for increased flexibility to meet the needs of their different customer segments,” the wealth management firm said.
“Tiered advisor charging models are growing in popularity as they allow advisors to set client fees in a flexible manner and easily tailor their charges based on different customer segments. In light of Consumer Duty, such models will play a key role in ensuring advisors can offer fair value to their clients,” it said.
“The implementation of the Consumer Duty has provided a useful reminder to advisors to evaluate their offerings and, importantly, price their services accordingly for different client segments,” Jenny Davidson, commercial proposition director at Quilter, said.
“Increasingly, advisors are favouring a more flexible approach to fees' models to tailor for the needs of individual clients or client segments, and the facilitation of tiered advisor charging on platforms is playing a significant role in this,” she said.