We are only 4 weeks into the brave new world and already we are seeing the first examples of politico-regulatory “Told you so” and “You couldn’t make it up”.
Liberal Democrat MEP and Economic and Monetary Affairs committee chair Sharon (Sally) Bowles has fired a salvo against the banks suggesting that their published adviser charges are a “rip off”.
In fact they are so much of a “rip off” she reckons, that the arrival of RDR has created a system so complicated for the average consumer to comprehend that the commission option would be easier 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 per cent on the first £300,000 invested, HSBC is charging an upfront fee of £950 on assets up to £75,000, RBS is charging £500 to set up a financial plan and a fee when the client invests, which starts at 1.25 per cent for assets up to £500,000 and Nationwide is charging 3 per cent initial and 0.5 for ongoing advice.
Ms Bowes is clearly trying to help the consumer, but sadly, she is deluded and frankly 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.
RDR for better or worse is here to stay, well for a while at least, but RDR is also about free markets, and adviser charging is part of that.
Our recent survey of some 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 intended to make, that Ms Bowles refers to, are on the high side but we have a regulator created 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 brain dead would consider going to a bank for financial advice.
Also, you cannot apply a cap to the amount a firm charges without at the very least capping the costs that a firm incurs in satisfying uncontrolled and increasing costs placed upon it by regulation. And that would never happen.
Politicians and regulators seem to assume most if not all consumers are stupid, and in-keeping with so much of todays nanny state thinking, must be protected from themselves. Financial advice costs, it is up to the consumer to decide how much is reasonable, is access to it convenient, is the advice suitable and understandable and how well qualified and for what is the adviser?
Ms 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 “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 and if the initial advice is not worth the money you can take your business elsewhere.” This is akin to going to a restaurant, eating the meal then saying you will not pay as you did not like it.
So Ms Bowles, welcome to the world of the fee based advice. You are right, commission is easier to understand for the average consumer, particulary those who do not want to pay for advice if they do not like it and want a “get out of jail free, take your business elsewhere, card” to justify their not paying.
As Sally Bowles sang,
“What could permitting some prophet of doom, to wipe every smile away.
Life is a cabaret, old chum, so come to the cabaret”