Last week was a busy week for us and at each point of sitting down to consider our blog topic we were pointed in the direction of another comment or angle on the post RDR fee environment. As a result we are following on from the topic of our last blog on adviser and investment manager relationship with more thoughts specifically on adviser charging and investment manager fees.

It is becoming clear that this will be the focal point of the change in the industry.

Now that everybody is qualified and supposedly positioned to embrace adviser charging we can see where the battle for delivery of customer value will occur.

In a snapshot of adviser fee structures, ten adviser charging schematics we are provided with a variety of charging models most of which don’t yet focus clearly on the adviser time component to their services but reference the value of a client portfolio. We think that fees will continue to be eroded until most advisers have clear view of their hourly cost and service values. It will only be the higher performing advisers that retain the ability to charge based on portfolio values.

 


The first article comes at the same time as the idea that 76% of advisers will charge as a percentage of assets. These are interesting points and may well be the stepping stones in a process of rationalising fee structures. However, at the moment they generally appear to convert the provider commission to a more visible client fee. The big question remains as to whether the client places similar values on the adviser component of what is ultimately a service that is closely integrated with the investment manager.

The suggestion that the investment manager or provider is in some way isolated from the adviser is to ignore that the provider is the advisers’ access to portfolio performance.  We think that the loneliness of the long term manager is over played in this article. In fact, in order to survive, the relationship between the adviser and manager must become stronger and more evident in the eyes of the client or both parties run the risk of being ignored as competition drives down the total cost of the financial advice and investment management process.

It is worth looking at the other end of the scale in order to achieve some perspective in the fee structuring process. Two more recent articles published this week probably say more about where adviser services are going to find themselves in the coming months.

The first of these short articles is written by an investment professional, who with his detailed knowledge is naturally inclined to think financial advisers are too expensive. This may be the case given his particular circumstances however there is no doubt that there is a demand on the part of the public for good advice to save them time in managing their long term financial needs. However, the next article gives a flavour of the client appetite for paid advice now that it is visible. How does £45 per hour sit with the bold plans of the first article?

Clearly, we have a long way to go before the industry settles down to provide a true long term value for its clients. This will happen over time and it will happen at different rates for each business either as an adviser relying on an investment manager’s performance or an investment manager relying on the adviser for the introduction and management of individual client relationships.

We think that the next year post RDR will feature the drive for more robust investment methodologies that the adviser is truly comfortable with and can recommend to their clients. Such relationships with investment managers will be worth a premium and at the same time a truly reliable source of investment funds will be worth sharing with an effective adviser proposition.

In short it is a case of going back to the drawing board ensuring that the adviser / manager relationship is integrated without excessive overlaps and that the overall fees based on delivery of long term value are divided equitably. The final article that came to our attention this week was business planning.

The suggestion that only 20% of intermediaries are truly in control of their future right now might fit very well with the idea that 76% of intermediaries are expecting to transition to charging a percentage of client assets?

Keith Reid
Keith Reid
Keith’s training as an accountant and auditor has emphasized the importance of evidence in all good decision making process. The ability to monitor management processes effectively is a key to making the most of business opportunities. Both Keith and Gerry believe that this priority for capital preservation is the common principle that sets the framework for any sound investment strategy or business model.