Advisors' Hourly Rates Remain Unchanged After RDR - APFA

Stephen Little

29 July 2013

Despite concerns over the impact of the Retail Distribution Review on the cost of advice for consumers, the vast majority of financial advisors have not altered their hourly rate since the implementation of the RDR in January, according to research by the Association of Professional Financial Advisers.

The research, compiled by NMG Consulting, was conducted at the beginning of June and 225 financial advisors were inteviewed.

It found that 82 per cent of advisors had not changed their hourly rate since January, with 12 per cent increasing their rate and 2 per cent lowering it.

"Despite advisor numbers falling and firms initiating new RDR-ready business models, the majority of advisors have stuck to their initial pricing models. Many may have adjusted charges last year in anticipation of RDR implementation, but it's testament to advisors that customers have had widespread stability on pricing so far in 2013," said Chris Hannant, director general at APFA.

The research also revealed that the average hourly rate charged by advisors is £156 and that the majority of advisors charge £150 or less per hour of service, with 49 per cent charging between £101 to £150 and 15 per cent charging between £51 to £100.

Meanwhile, just a third of advisors charge more than £150 per hour, with 26 per cent charging between £151 and £200 and only 8 per cent charging between £201 and £250.

"The average rate of £156 per hour provides the industry with a valuable benchmark. We are pressing the Financial Conduct Authority hard on disproportionately high regulatory fees and we will track this average rate figure to ensure other financial pressures, such as regulatory fees, aren't resulting in increased charges for clients, said Hannant.

Concern over charges

In a review of how advisory firms have implemented some of the core aspects of the RDR published by the FCA last week, the regulatory body expressed concern about a number of common issues which had led to confusion among clients, including the disclosure of charges and fees.

Since the launch of the RDR, a firm must disclose its charging structure in writing and, where possible, in cash terms.

Although many firms had tried to create documents clearly outlining the charges a client would pay, the FCA found that some firms were not yet meeting the new rules.

The FCA said that those firms which provided charges in percentages, rather than in cash terms, had caused confusion among consumers that as a result had struggled to calculate the cost of advice when they had to work out how much they needed to pay.

Even if cash terms are included, firms should also ensure that their disclosure is sufficiently clear for a client to understand the total likely costs, the FCA said.

In one example, a firm used a charging structure that described the advisor charge as a minimum of £1,500 to a maximum of £5,000 with no additional detail. As a result, a client would be unable to apply this to their own circumstances and assess what the likely advisor charge may be.

Hourly rates

The report also drew attention to how some firms' charging structures that included hourly rates did not provide sufficient information for a client to understand the likely cost to them.

The FCA said that firms can help consumers to understand by providing examples, such as the typical cost for an investment need.

A firm must now provide a client with its generic charging structure in good time before making a personal recommendation to help inform the client about the likely cost of the advice.

Most firms assessed by the FCA provided their charging structure at the beginning of the initial meeting with the client, while some firms provided their charging structure before the meeting.

However, the FCA found that one firm that did not provide its charging structure until the second meeting, at the same time as delivering its recommendation, which it felt "did not put the client in an informed position" early enough in the advice process.

Between February and April, the FCA sent 50 questionnaires to firms asking them to give details about how they give information to clients and their charges. It is the first of three reviews planned over the next year to assess what progress advisory firms are making to meet the new RDR rules. For more information on the FCA's review, click here.