Is Mifid II widening the advice gap? A report issued this summer by consultancy Platforum at least implies this could be the case.
The report Adviser Market: Charging Models found more than 40% of advisers had reviewed their charging structures in the first half of this year.
It suggested that “over half the advisers surveyed increased their charges, either for all their clients or at least for their lower value clients, who tend to be less profitable”.
And it found when advisers analyse how much time they spend on individual clients and what they need to charge to cover their costs, it often turns out that they are making losses on lower value investors.
The report also contended that Mifid II has led advisers to reflect on the way they explain to clients how much they are paying and what for. Appointed reps, in particular, were under pressure from their compliance teams to review charging models.
Although many of the firms reviewing charges have decided to make no changes, of those who had regulatory change was often blamed, says Platforum.
Having to charge more
When Portfolio Adviser, International Adviser’s sister UK publication, spoke to advisers about this, they tended to agree.
Sheriar Bradbury, managing director at Bradbury Hamilton, says Mifid II has focused the mind particularly on lower end clients.
“You might have a client with a relatively small fund and you might be collecting half a per cent from it. It produces something, and the client might phone up from time to time, and you give them a fairly, minimal service. It is fairly reactive.
“Mifid II means it can’t be like that anymore. You’ve got to do something. You’ve got to define exactly what it is, and ideally you need to speak to them at least once a year. It is saying in almost every event, you have got to have done something proactive and documented it. You need to liaise with that client and updated their circumstances. It is sort of saying that you have got to have had some sort of meeting with them.”
That means his firm has had to change the terms with which it deals with clients.
Bradbury adds: “That kind of responsibility – if you are not getting much money – it’s not worth it. So you are either going to have to charge them more or take the money off completely and not offer any service. It is almost as if every time they speak to you, they have got to pay you.
“We have come to a decision with some clients that we shouldn’t be taking any money and we shouldn’t be offering them a service. With some other clients we have said we can offer you more of a service, but we have to charge more too.”
CanScot partner Robert Reid says: “Where people like me have been looking at whether we can cut our charges, Mifid II and all the others elements that are kicking in at the moment – even things like Brexit – a lot of people have put that on hold, just to see how the costs percolate through.”
Interestingly though, some business consultants suggest not focusing on Mifid II.
All about the platforms
Ben Hammond, senior consultant at Altus Consulting, says: “I would steer away from Mifid II. It is almost a follow up from the RDR and RDR II – making things clearer and even more explicit than it was before.
“My view is that it is more about the platform that the IFA is using and how it can make their lives more efficient. The concept of a client being able to take advice when they want to and otherwise self-serve keeps the client happy. It may see them paying for advice at point of need, so for complex tax or inheritance tax planning, but if they just want to get on and stick £20,000 in their Isa, they can do that themselves.
“While individuals have to receive clear and transparent charging that meet the Mifid II rules for me this is more about the adviser making sure that in broader terms, that they have got the correct selection of platforms for their own client books.”
“On the flip side, I would say the platforms need to be positioning themselves with particular adviser types in mind as well. If a platform can be as efficient as possible and has good technology, they could theoretically reduce their charges, which keeps the clients and the advisers happy.”
‘I can’t afford to deal with people at a certain level’
Yet advisers, with an eye to overall policy-making remain unhappy with the general direction of travel.
Bradbury adds: “Overall, it has made us more efficient but from a point of view of lower end clients, it is not doing the general public any good, because it is just forcing IFAs to deal with people who are more able to pay fees.”
Reid adds: “As far as the lower part of the market is concerned, I can’t afford to deal with people at a certain level and that is not being snobbish. That is just looking at base costs. I would argue that in London if you are not generating at least £1,500 at kick off, you are not justified in even opening it up to these clients.
“If we can get the FCA away from the idea that triage is a binary decision, that it is a sort of tumble down approach, we could look again at who we could help and not just on DB transfers.”