Charges, disclosure and commoditisation

Charges, disclosure and commoditisation

Capitalism functions by a process of “creative destruction”, where innovators develop new ideas and these are grasped by others, who take those ideas further and create a new normal position. We recently crashed into a version of this when we were preparing a series of investments for a client and had reason to query the cost to the client.

Currently, this specific investment is dominated by an innovator who designed the original product and spends a significant marketing budget on raising awareness about the product and its uses. However, in recent years there have been several new entries into the market, who charge differently but are offering essentially the same thing. At the same time, there is now a research tool that enables us, as financial advisers, to look more deeply into the market providers and decide from a position of market-wide knowledge.

Imagine a market with more than three providers, but where the top three, as identified by our research tool, have initial charges of 2.5%, 1% and £300 respectively. Now on an investment of £500,000, this represents a cost to our clients of £12,500, £5,000 and, of course, £300. We can, helpfully, ignore the on-going costs as these are identical across the providers.

For us, as fee based advisers, we are strongly wedded to the idea of cost disclosure in terms of £s and pence, so the idea of paying 2.5%, (or more specifically £12,500), of our client’s money for a service barely distinguishable from a similar one at a lessor price is anathema!

The innovating company had benefitted from a period of super-profits, where they had a unique product in the marketplace and could charge a premium price for it. Unfortunately for them, the super-profits attracted more entries to the marketplace and now it is more of a commodity. Research tools then allow us as financial advisers to look behind the smoke and mirrors of marketing and ensure that we are comparing like with like.

Financial advice is an area where costs can be hard to get definitive answers on. The recent Financial Conduct Authority thematic review suggested that disclosures of percentages (%) on their own were not clear enough to meet the standard required. For an adviser charging their client 3%, 2.5% could look “reasonable”, but for us charging £1,710, it was more of a diabolical liberty!

As a business, we have looked to our cost base and produced a fee table that works on the basis of enough profit to produce a sustainable business, not take as “much as the market will stand”, as we feel this is fair and equitable to our clients. Providers need to take note, as market forces work both ways; as products become more commoditised, the cost needs to fall or advisers, who need to be well informed of market conditions, will go elsewhere.

If you would like to know more about how we can help you plan and realise your financial goals then contact us at or call us on 01223 792 196.

The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of UK legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly no responsibility can be assumed by Martin-Redman Partners its officers or employees, for any loss in connection with the content hereof and any such action or inaction.