Consumer duty: Advisers warn of fee increase

Over half of advisers expect their fees to remain the same, while just nine per cent expect fees to decrease as a result of the consumer duty reforms which are being rolled out at the end of this month.

Research carried out on behalf of Quilter by Boring Money, found that over four out of 10 directly authorised financial planners were concerned they would need to increase their prices, compared to two out of 10 of those advisers who were part of a network. 

Just under half of the financial advisers who took part in the survey said they felt they had no choice but to increase fees to maintain profitability, while only five per cent said that profitability of their firm would increase. 

Consumer duty and fee models

The FCA’s consumer duty will come into force on 31 July, and aims to ensure consumers receive ‘fair value’.

The duty has prompted advice firms to review their fee models.

Quilter said that for some companies the process will be a simple task, but for others it might require "increased flexibility" to meet the needs of their different customer segments.

Tiered adviser charging models are growing in popularity as they allow advisers to set client fees in a flexible manner and easily tailor their charges based on different customer segments.

Jenny Davidson, commercial proposition director at Quilter, said: “The implementation of the consumer duty has provided a useful reminder to advisers to evaluate their offerings and importantly price their services accordingly for different client segments."

"The fact that almost a third of advisers are saying that fees will likely increase may be a reflection of the costs associated with adapting to fulfil the requirements of the duty, particularly where those costs are borne without wider network support. 

“Increasingly, advisers 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 adviser charging on platforms is playing a significant role in this.”

What is the FCA's consumer duty?

The arrival of the new consumer duty on 31 July 2023 means that the Financial Conduct Authority (FCA)will require firms to act to deliver good outcomes for retail customers, on products and services, price and value, consumer understanding and support.

It encompasses FCA regulated firms who are regarded as having “material influence” over the outcomes for retail customers, so the consumer duty will only apply to firms if they can influence outcomes for retail customers.

The FCA's consumer duty aims to:

• end excessive charges and fees; 

• make it as easy to switch or cancel products as it was to take them out in the first place; 

• provide helpful and accessible customer support, not making people wait so long for an answer that they give up; 

• provide timely and clear information that people can understand about products and services so consumers can make good financial decisions, rather than burying key information in lengthy terms and conditions that few have the time to read;

• provide products and services that are right for their customers; and

• focus on the real and diverse needs of their customers, including those in vulnerable circumstances, at every stage and in each interaction. 

The duty is initially limited to ‘open’ products and services, applying to ‘closed’ schemes a year later. Neither employers or trustees (who are regulated by TPR) are in scope of the consumer duty as they are not FCA regulated firms and are not classed as retail customers, but trustees should not get complacent as trustees and occupational schemes may also be indirectly affected.