Challenges Ahead: Financial Advisers And A New Consumer Duty

The Duty will include requirements for firms to end rip-off charges and fees.

The FCA’s Consumer Duty will lead to a major shift in financial services | FCA – PS22/9 12.9

By the end of October 2022 (UK) adviser firms’ “boards” should agree implementation plans (PS22/9 12.9). What should financial advisers be thinking about for the next three months?

CP21/13: A new Consumer Duty of May 2021 (updated) stated firms must consider outcomes for different groups (4.96). Servicing fees charged as a percentage of the product’s value are NOT automatically assumed to be fair value (4.97). And firms are expected to amend prices accordingly (4.102).

See FCA Calls Time on Unfair Adviser Charges – Academy of Life Planning

Advisers have until end of October to make plans and July 2023 to implement them.

The rules:

“Firms offering the same charging structure to all consumers may also not provide fair value. Whilst it may often be fair to do this, it may not always be fair where, for example, servicing fees are charged as a percentage of the value of a product (this might be in relation to the size of a loan, investments, or savings). Some consumers may pay substantially larger fees in this way even though the costs of providing the service and the benefits consumers receive may be very similar. In such circumstances, firms should consider whether the relationship of the price such consumers would pay is reasonable relative to the benefits they receive.”

PS22/9 and FG22/5 section 7.41 refer.

PS22/9: A new Consumer Duty | FCA

FG22/5: Final non-Handbook Guidance for firms on the Consumer Duty (

Example Different Groups:

Consider Consumer A £1m client & Consumer B £100k client.

If the charge is 3% initial and 1% per annum.

Consumer A pays £30,000 and £10,000 per annum.

Consumer B pays £3,000 and £1,000 per annum.

What does a product distributor do? What value-adding service do they provide?

Acting on your behalf. Manage your portfolio. Recommends portfolios (regulated stuff).

Consider the overall value chain (platform + funds + advice) and the higher overall fee

The charge:

IFA selecting a portfolio for me (1%) + unnecessary fund platform (50bps) + active fund manager (75bps) = 225bps. Plus, buying the market costs 25bps. Total 250bps per annum.

Consumer A pays £25,000 per annum.

Consumer B pays £2,500 per annum.

Ten times more than buying in the market directly 25bps per annum.

Market Direct:

Consumer A Pays £2,500 per annum.

Consumer B pays £250 per annum.

But the value add from managing your portfolio is not ten times better. And certainly not one-hundred times better!

99% of portfolio managers fail to beat the market. There is no value added here.

Higher prices can be attributed to higher costs to you in delivering the service. The cost of recommending portfolios can be variable, but there is a great deal of fixed cost in there too.

A helpful test would probably be to look at expenditure and split it into fixed and variable costs by assets managed for the client. And produce a Fixed Fee + Variable Fee pricing structure.

But at the end of the day, portfolio management is commoditised. Any significant fee for portfolio management services charged by advisers might fail the value-assessment test.

“Managing money for clients is simply one of the tools in your kit bag – it is not what you do.” – Brett Davidson.

Relationship management is outside the FCA’s perimeter guidance (unless provided to conduct regulated activity). In other words, the other stuff you do that adds value is not a regulated activity!

What does an Advice-only Financial Planner do?

Here’s the list of some things that advice-only financial planners do that add value to clients …

  • Educates you on how to buy the market direct for 25bps.
  • Educates you on behavioural bias and holding low-cost auto-rebalancing well-diversified multi-asset funds. Vanguard calls’ Adviser Alpha’, which is around 3% per year in their calculation of investment value-added, Advisers Alpha | Vanguard UK Professional
  • Get involved in tax planning, general pensions advice, wills, estate planning, life goals and lifetime cashflows. Saving them time. Cutting through any jargon. Providing a clearer understanding of their choices.
  • Calculating a financial target, they can work towards
  • Validating a target that they’ve come up with themselves
  • Education on products, general explanations of features and benefits
  • Providing an expert second opinion – on asset strategies (not products)
  • Keeping them on track and aligned with their real-life goals
  • Removing the emotional pain or fear about a financial decision
  • Or helping them manage their emotional baggage around money
  • Plus, intangible value added, the peace of mind that comes from knowing someone has your back covered.

Once you realise you are in the relationship management business, many things become clear.

Cashflow modelling becomes central to your proposition because it allows clients to see for themselves live on screen the impact of their choices or decisions, deepening engagement and buy-in.

Doing the right thing by clients in all situations is central to creating a relationship based on trust and keeping clients for life.

Your fees are unrelated to anything other than keeping clients focused on what matters and helping them achieve their life goals as best you can.

This help is your real value. 

And the price you pay?

Fixed fee. Related to your time spent managing the relationship and providing education and in proportion to the cost to you from delivering the service. Each year.

Different outcomes for different groups must not produce price discrimination. Consumer A and Consumer B fees should be reasonable relative to the benefits they each receive.

There are no ad valorem asset costs to an advice-only financial planning firm. It cannot be reasonable for Consumer A to be charged ten times the price of Consumer B when they both receive the same service.

For those light-touch years, provide a tracking progress system, for example, a Netflix-style subscription service. An end-user app, educational videos, and newsletters.

See, HapNav, the world’s first customer-directed Open banking-powered financial planning application. Register Free to planner, £6.99/month for end-user (free 30- day trial). Moneyhub partners with Envizage for financial planning first — Moneyhub

If we are in the buy and forget phase, typically accumulated years, the client will not need much service. In decumulation, the client may need your help year by year. Life events also generate planning work.

A fee that is the same every year could fail value assessment.

Fake reviews won’t cut the mustard.

A fee for no service will fail value assessment.

Get planning your strategy, and be ready with your plans by October.

If you deliver these advice-only financial planning services with a view to recommending portfolios, all of your activity is regulated, and subject to a New Consumer Duty.

If you are interested in setting up an Advice-only Financial Planning firm and want my help, please email me at

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