Manchester-based wealth management firm King Street Wealth Management has called on the sector to stop charging initial advice fees to customers.
The company said they give the industry “a bad name” and give “pension-holders a raw deal”.
King Street has already stopped charging such fees and said that this industry standard fuels a culture of “complacency and inefficiency”.
“Initial fees are unnecessary and are precisely the sort of arbitrary, opaque charge that gives our entire industry a bad name,” said Matthew Singleton, chief investment officer at King Street.
“This is something we’re determined to challenge, as part of our commitment to improving the industry and fostering long-term thinking.
“The fact that fees are often a percentage of the entire pension pot is really unfair too. The value of the pension is irrelevant to the amount of effort required to do the research.
“The industry average for these fees seems to be around 3%. So, a person with a pension pot of £200,000 ($264,250, €236,656) stands to pay out £6,000 just for the privilege of looking to move their pension.”
Transparent fees don’t need waiving
But not everyone shares that view.
Tim Sargisson, chief executive at Sandringham Financial Partners, told International Adviser things are not as easy as Singleton sets them out to be.
“I don’t think this position is as black and white as [King Street Wealth Management] believes,” he said.
“Clients should expect, and do expect, to pay for any initial work undertaken, where Mifid II is helpful in improving fee transparency. The real issue is ensuring the client is clear about how much and what it is they are paying for.”
Sargisson added that while firms can choose their fee structure, it is also their duty to research the market and how much customers are willing to pay.
“However, none of this supports the argument that initial fees ‘give the industry a bad name and pension-holders a raw deal’.
“I’m not sure why initial fees are getting such a bad press; renewal fees tend to be equally if not more opaque. We still see these paid habitually to firms without any work being done to support the firm’s entitlement to ongoing payments,” he said.
Educate your clients
King Street managing director Mark Parello, however, feels that entry fees are keeping potential clients away.
And educating customers on how wealth management can help with their lives is part of the industry’s job too, he said.
“People assume that wealth management has to be complex. They also believe they have to have a lot of money to get started.
“That’s the biggest barrier.”
Parello added: “So, we tell them – ‘you don’t have to start big’. That’s a vital plank of the education piece.”
Understand the ground work
But Phil Billingham, director at Perceptive Planning, said there are distinctions to be made first, because there is more than one process going into wealth management, and the value they add can be different.
He told IA: “I agree that the process referred to – which is simply moving money into a fund – has little value, and the historic high charges for this are wildly outdated and need reducing, if not eliminating.
“And this goes for exit fees as well.
“However, it appears that this process is being confused with the planning and advice process, which has much greater value, and has a cost, which needs to be charged for.
“And this charge needs to be fee only, not a percentage of invested assets, and not dependent on making any particular investment.
“I find it’s very common for the money industry to not value the planning process, as it’s a process they don’t see, and usually involves advice about assets and other parts of the client’s life that they don’t even know exist.
“So, yes, it’s really easy. If your part of the process adds no or little value, and can and should be automated, then don’t charge for it.
“But if you carry out work that the client values, they will cheerfully pay your fees,” he added.
