The average for the 54 firms was 87 bps for ongoing advice, with 21 of the advisers charging 100 bps. The average platform fee meanwhile was 28 bps and the average fund management charge was 63 bps, bringing the total average annual cost to clients to 178 bps.

Our research, based on anonymous responses, points to advice fees growing since the RDR came into force in 2013.

Can fees climb further? What has been pushing fees upwards? And are advisers providing value for money?

Creeping up

Martin Bamford (pictured left), managing director of Surrey-based Informed Choice, said the average fee reported by firms in our survey ‘feels a little high’. He said it represented a noticeable increase since before the RDR.

‘If we look back to pre-RDR, we used to work on the basis of 150 bps,’ he said. ‘A typical breakdown was 50 bps for the advice fee, 75 bps for the fund management and 25 bps for the wrap platform.

‘Things have changed a lot since then. What financial planners do for their money is significantly more than it used to be. It is not just about picking funds any more, we now offer a holistic financial planning business.’

Darren Lloyd Thomas (pictured left), managing director of Haverfordwest-based Thomas and Thomas Finance, does not believe this kind of service can be provided easily for pre-RDR-style fees. This is because they often go hand in hand with high initial fees.

‘If you run a like-for-like comparison on 300 bps initial plus a 50 bps ongoing charge, which was the standard approach, it decimates the investment,’ he said. ‘It takes over five years before 0 bps initial plus 100 bps ongoing becomes more expensive.

‘[Advisers charging lower annual fees] can come up trumps on the question of ongoing, by only charging 0.5%. But they are then not delivering a whole load of service for that 0.5%.’

Phil Young (pictured left), managing partner of consultancy Zero Support, said he has looked at advice fee research conducted by another company, which also showed ongoing advice charges rising. In that sample it was from 71 bps to 76 bps between 2014 and 2016.

Young said he has noticed advisers moving towards the 100 bps mark, which is normally what they charge new clients now. He said this has ‘ticked up’ the average each year. He said he felt a compounding growth of around 3% he has seen (to now reach 87 bps) was driven mainly by the supply-demand situation.

‘I have sat in meetings where people say: “We think adviser fees are going to come under pressure.” But in the next slide they said supply is going down and demand is going up. People sat in the room from outside the industry, are looking at it and saying “this doesn’t make any sense.”

‘The evidence is that advice fees are consistently going up. As much as we on the inside say they will come down, there is no evidence that this is happening at the moment. The normal metric of supply and demand suggests that is not going to carry on further forward. All the metrics suggest advice fees, if anything, could go higher.’

Why are fees on the rise?

The consumer finance landscape over the past two years has been awash with calls for increased transparency and reduced charges.

The Financial Conduct Authority’s (FCA) asset management review and platform market study echoed those views with its criticism of the value for money provided by investment funds. Rumours rumble on that the regulator will scrutinise advice fees specifically at some point.

Low-cost passive investments have rocketed in popularity and are the product of choice for robo-advisers. Thomas is nervous quality advice could suffer if forced to compete with budget propositions.

‘We must not get involved in the race to the bottom on fees,’ said Thomas. ‘If we wrongly start trying to compete with robo-advisers, we will drive out quality advice and decrease choice in the market.’

But our research shows no evidence of any race towards lower fees. The reasons for this rise are easy to see.

When the levy takes

Regulatory fees have been going up and up for IFAs. Earlier this month the FCA announced advisers’ regulatory levies will rise 4% for the 2018/19 year and some firms will pass these costs on to clients.

Rising professional indemnity insurance premiums for IFAs and recent supplementary Financial Services Compensation Scheme (FSCS) levies also weigh heavily.

Mike Barrett (pictured left), consulting director at the Lang Cat, said the rise in advice fees is not ‘necessarily a bad thing’.

Since the RDR and the pension freedoms, Barrett said, advisers have had more complicated advice to give, particularly at retirement. He said it takes longer and is harder than the previous model.

Also, advisers are not under external pressure.

‘Consumers are still not particularly price-sensitive,’ he said. ‘The dominant direct-to-consumer platform is Hargreaves Lansdown, which charges an above-average platform price. The dominant advice proposition at St James’s Place also charges well above average total costs.’

Barrett said advice fees may plateau at their current level. But he said advisers could squeeze platform and asset management fees ‘particularly with the regulatory theme of value for money on asset management coming through’.

Clearer picture

Tracey Evans (pictured left), director of Juno Wealth Management, based in West Sussex, uses passives and smart trackers such as Vanguard and Dimensional to keep costs down. But she was ‘surprised’ one of the respondents to our research could offer advice for 41 bps.

‘I know we could not offer that with our costs,’ she said. ‘I do not think any reasonable firm could.’

Regardless of trends in fees, Evans is glad of the rising tide of transparency, which means the client stands a much better chance of understanding those fees. However, she said disclosure to clients is frustrated by some platforms and providers dragging their heels.

‘The whole point of the Mifid II regulation is to make charges clearer,’ she said ‘We all have a duty to disclose how we break down our costs, we have been doing this for years.

‘But we have not had all the facts and figures through from platforms and providers to do it. Some are still behind the curve.’

(For editor's comment, click here.)

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