Investors are paying millions over the odds to financial advice companies for services and products available more cheaply online.
An independent financial adviser has threatened to quit Intrinsic, one of Britainâ€™s biggest advice networks, because of the charges it imposes on customers and the limited range of funds it offers.
Networks offer advisers support in marketing, training and compliance, and take a slice of their income, but risk conflicts of interest in promoting their in-house investment products.
Diane Carr, who owns Crosbie Carr Financial Solutions, is one of 3,000 advisers with Intrinsic but has thought about leaving because she feels pressured into adopting a â€œrestrictedâ€ model where clients typically have access to a limited number of model portfolios, charging well above industry standards. She says that Intrinsic coaches its restricted advisers to charge the same as a whole-of-market independent financial adviser (IFA) who is obliged to consider up to 6,000 single-asset funds alone.
She says Intrinsicâ€™s upfront fee of 3 per cent and annual charge of 1 per cent are typical for whole-of-market IFAs. She says the networkâ€™s restricted advisers offer little choice of investments and ask only 12 questions of clients to establish their risk appetite.
â€œHow can a restricted adviser get away with charging the same as an IFA for not really choosing or managing investments on a continuous basis? They are doing something a schoolchild can do: asking the client to deliver an Attitude to Risk definition, then looking up the funds available for that.â€
Carr claims the service is disguised â€œrobo adviceâ€ â€” the automated online service being developed by some companies as a cheaper alternative to individual financial advice.
One fund on offer, the Â£722 million Premier Multi-Asset Distribution fund, costs at least 2.67 per cent a year for clients with Â£50,000 before advice charges are added â€” a 3.67 per cent reduction in the annual return.
Carr worked with Positive Solutions for 11 years before the advice network was acquired by Intrinsic in 2013. A year later, Intrinsic was bought by Old Mutual Wealth, the South African fund giant that trades on the London Stock Exchange. Carr claims the company encouraged her to put her charges up to 1 per cent.
â€œI typically charge 0.25 per cent for advising a client on a pension worth Â£250,000. Intrinsic can use its buying power to cut costs but clients are not feeling the benefits because advisers are being encouraged to add 1 per cent per year. This could ultimately halve the expected returns for a cautious investor.â€
Carr suggests that the firmâ€™s business model is at odds with the aims of the retail distribution review, introduced by the regulator in 2013. That shake-up was focused on stripping away hidden commission from the sale of products through financial advisers. It also compelled them to be more upfront about fees, and clarify whether they recommend products from across the market or only use a â€œpanelâ€ of providers â€” the difference between a genuinely independent adviser and a restricted one.
Recent research has found that 13 out of 17 national wealth advisory firms are restricted. The analysis by Chase de Vere also found that only one restricted adviser, Skipton Financial Services, displayed its status openly on its website.
Patrick Connolly, a certified financial planner at Chase de Vere, says: â€œWe donâ€™t believe that restricted advisers necessarily give bad advice, but we do believe that people can only be truly confident that they are receiving unbiased and impartial advice, with no conflicts of interest, if they use an IFA.â€
Connolly says larger firms may be â€œfar more focusedâ€ on selling products to shore up revenue. â€œThis can cause a potential conflict of interest between â€˜restrictedâ€™ advisers and their clients.â€
Justin Modray, the founder of Candid Financial Advice, says that an upfront charge of 3 per cent and an ongoing charge of 1 per cent per year can â€œmount up to many thousands of poundsâ€.
His own research found that only 10 per cent of all national advisory firms, independent and restricted, disclosed their fees on their websites. Modray says: â€œWhen advisers do eventually disclose costs, they are generally far from clear. Additional advice charges, as well as those for investment funds and platforms, may not be explained.â€
Intrinsicâ€™s advisers can choose whether or not to publish their fees, and many do not. Richard Freeman, the chief executive at Intrinsic, says: â€œWe do see restricted advice as a lower risk, lower-cost model that can deliver excellent outcomes for the vast majority of clients. However, we also recognise the value of independent advice for certain clients.â€
He adds that charging should be agreed with clients as an â€œexplicitâ€ percentage and monetary amount. â€œThe majority of advisers are not charging clients for time spent researching and picking funds. They focus on having a deep understanding of a clientâ€™s circumstances and financial needs.â€ Freeman also says the returns on the Cirilium funds were within the top quartile compared to its peer group over three and five years.
Industry sources say networks are increasingly opting for the restricted route to control the risk of fund recommendations going wrong.
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