New research from Quilter has found that almost a third (32%) of financial advisers expect their customer fees to increase as a result of the Financial Conduct Authority’s (FCA) Consumer Duty.
Over half of advisers (55%) expect their fees to remain the same, while just 9% expect fees to decrease as a result of Consumer Duty.
Quilter’s research, gathered by Boring Money, shows that considerably more directly authorised financial planners (38%) are concerned they will need to increase their prices due to the Consumer Duty compared to those planners who are part of a network (22%).
The research also shows financial advisers may feel they have no choice but to increase fees to maintain profitability as 44% said they believed profitability would decline as a result of the Consumer Duty, while only 5% said that profitability of their firm would increase.
As of 31 July 2023, the FCA’s Consumer Duty will come into force, which includes the price and value outcome which ultimately aims to ensure consumers receive ‘fair value’. While the price paid is not solely indicative of value, it is an integral part and is something advisers will need to carefully consider to ensure they meet Consumer Duty requirements.
The Duty has prompted advice firms to review their fee models to ensure they represent fair value. As part of this firms are expected to understand and clearly define their target markets to ensure fees are suitability structured for the services being offered. While for some this process will be a simple task, others will likely recognise a need for 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. In light of Consumer Duty, such models will play a key role in ensuring advisers can offer fair value to their clients.
Jenny Davidson, commercial proposition director at Quilter, says:
“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.”
Research conducted by Quilter in June 2023 in conjunction with Boring Money, surveying 339 financial planners.