Around 20 of the ‘largest advice firms’ have been contacted. Their selection is not based on any concerns specific to them.

In the survey, the FCA asked if firms have assessed their ongoing fees in the context of the Consumer Duty, and whether they have made any changes as a result.

See also: Vanguard rolls out hub for UK advisers

The regulator also asked for data on the number of each firm’s clients due for a review of the ongoing suitability, how many received that review and how many paid for ongoing advice but whose fee was refunded as the suitability review did not happen.

The FCA said it will use the responses to assess if more regulatory action in this area should be undertaken.

Mark Polson, founder and chief executive of The Lang Cat, said: “The FCA’s own data shows that 77% of advice sector revenue comes from ongoing fees, so make no mistake, this is a big thing. I’m sure we can all agree that everyone who provides an ongoing professional and valuable service deserves to be paid a fair price for it.

“So, we must also all agree that no customer should be paying an ongoing service charge where no ongoing service is being delivered.

See also: FCA bans and fines former London Capital & Finance man over minibonds

“Good advisers in well run advice firms have nothing to fear directly here, other than additional costs associated with increased evidence gathering. However, there are shades of Australia’s Royal Commission in this where they uncovered misconduct relating to financial institutions charging customers for services that were not provided and, in some cases, that were never intended to be provided.”

The cut will deliver an average 3.2% reduction for eligible customers and under the new pricing structure a customer with assets of £500k would see their charge reduced by £450 over five years.

This rate cut became effective from 1 December and is the second price reduction for customers in the last 18 months.

In July 2022 the annual platform charge was cut from 35 to 33 basis points.

To read more on this topic, visit: UK watchdog launches inquiry into Nucleus/Curtis Banks deal

New Nucleus Wrap customer standard charging structure

Mike Regan, chief financial officer at Nucleus, said: “We’ve been clear that as we build scale this allows us to invest more in our service, product and price. I’m pleased that we are now sharing the benefit of our increased scale by introducing our second annual rate cut for Nucleus Wrap.

“This latest price reduction increases our competitiveness, and more importantly, delivers an improved outcome for many of our customers, who collectively will have saved more than £10m by the end of next year.

“Over the last 18 months we’ve invested more than £20m in our proposition, service and price as we deliver against the priorities of advisers, helping them to make their clients’ retirement more rewarding.”

Currently, only 3% of companies are still in noncompliance and need to make required changes and only 21% reported that the transition was difficult and required “a lot of work” to comply.

About two-thirds of respondents have found Consumer Duty changes to be a worthwhile adjustment however when asked if adviser firms had mentioned Consumer Duty updates to clients, only 20% had sent out a notice.

Another 41% discussed changes when prompted by clients but the remaining 39% had not announced the changes.

To read more on this topic, visit: St James’s Place to overhaul charging structures amid ‘robust’ quarterly results

Jamie Jenkins, director of policy at Royal London, said “The Consumer Duty has prompted a great deal of activity from all areas of the financial services industry and, while this may have initially seemed onerous, it’s clear that it is making a difference to how firms operate in the interests of clients and customers.

“Financial advisers are closer to their clients than anyone else in the value chain, so they are very well placed to understand the changes needed to deliver good outcomes.”

Mike Barrett, consulting director at the lang cat, added: “If you believed the noise, you might conclude that advisers believe Consumer Duty is a waste of time. Reassuringly, our research shows a more positive sentiment, which, I think, reflects the advice sector’s transformation from an industry into a profession.

“Yes, there has been work to do to facilitate this transformation, however the intentions for Consumer Duty are hard to argue against. If the regulator can evidence proactive supervision, driving change and taking enforcement action where necessary, as well as helping advice firms understand best practice, we believe this positive sentiment can improve further.”

In an announcement on the London Stock Exchange on 17 October, the firm said any new investment bonds and pensions will retain an initial charge and ongoing charges, but will no longer charge investors for early withdrawals and will have no gestation period – which is how SJP’s unit trust and ISA arms of the business already operate.

In addition, charges across all of the firm’s wrappers will be divided into separate components including initial and ongoing advice, investment management and product administration – the latter of which will also be tiered for larger investments.

Overall charges will be rebalanced to “better reflect the value clients see across each element of [the company’s] proposition”, according to SJP, although details of this have not yet been disclosed.

From a shareholder perspective, SJP said the changes and implementation costs “will affect the shape” of the firm’s underlying cash result “over the next few years before growth accelerates over the medium term and beyond”.

Andrew Croft, chief executive officer, said: “We have always been confident that SJP offers its clients real value that helps individuals and families achieve financial wellbeing. However, it is increasingly evident that consumers are seeking simple comparability, and this has been reflected in regulatory trends too, as highlighted with the Assessment of Value and Consumer Duty regimes. The review of our charging model reflects these developments.

“I am confident that SJP’s ability to both deliver and demonstrate value in the future, with this sustainable model of charging for our end-to-end services, is good for clients and represents an exciting opportunity for SJP.”

Quarterly results

SJP also released its quarterly results today, covering the last three months to the end of September 2023. The firm saw gross inflows of £3.7bn for Q3, compared to inflows of £4.1bn over the same period last year. Net inflows stood at £910m, compared to £2.2bn during Q3 2022. Closing funds under management for the overall firm have ticked up, however, standing at £158.6bn compared to £143.1bn last year.

In terms of the investment and DFM arms of the business, net funds under management suffered respective outflows of £70m and £20m. However, the pension arm saw inflows of £1.2bn. Since the start of the year to the end of September, SJP’s investment division saw outflows of £80m, while the DFM side inflows of £340m.

Croft said the results reflect “another robust quarter” for SJP, pointing out that advisers attracted £3.7bn of new client investment not the business, while year-to-date annualised retention rates stand at 95.3%.

“The demand for trusted, face-to-face financial advice remains as strong as ever, but client capacity and confidence to commit to long-term investment continues to be impacted by an environment characterised by higher interest rates, stubbornly high inflation and short-term alternatives in the form of cash,” he explained.

“Despite the challenging operating environment, we continue to generate significant levels of net inflows, once again demonstrating the ongoing resilience of our business model.”

This article first appeared on our sister title Portfolio Adviser

In the UK, the introduction of the Retail Distribution Review (RDR) paved the way for the advice market to head towards fees. There was a somewhat mixed reaction to the move towards fees – but ultimately it has been accepted and thrived in the UK.

Across the Channel, the EU recently faced a backlash against banning commissions and had to u-turn when announcing its retail investment package. As part of the package, the EU is banning inducements for “execution-only” sales, where no advice is provided, to ensure that financial advice is “aligned with retail investors’ best interests”. It was originally looking to ban asset managers and insurers from paying financial advisers for recommending their investment products.

This also led to a European Federation of Financial Advisers and Financial Intermediaries (Fecif) member writing an editorial called the future of financial advice in Europe: why a commission ban is not the answer.

Another region which is still more commission-focused is Asia Pacific. The advice markets of Hong Kong and Singapore have some firms which have embraced fees, but the majority still use a commission model.

International Adviser has spoken with a range of firms in the industry to discuss whether the Hong Kong and Singapore advice markets can move fully towards a fee-only model.

Survival

The biggest argument against fees in the UK was that banning commissions would mean the end of some advice firms – and they wouldn’t survive the move towards fees.

So, is this an issue for firms in Hong Kong and Singapore?

An unnamed source from a global wealth manager said: “Diversification of income streams away from commission-only models just makes good sense from a governance perspective. As an ‘upside’ it also creates less volatility in the business revenue model.

“In other words – the business is less dependent on new client acquisition and can focus on the value proposition for existing clients because the business is getting paid to service their existing clientele and in doing so is generating income not wholly based on finding new relationships.”

Simon Parfitt, director of wealth management at Pyrmont Wealth, added: “A big issue is the markets are fragmented. There are more than 100,000 registered insurance agents all selling commission-based insurance products, primarily in the domestic market.

“It is also common for domestic IFA firms to favour a commission rather than fee model, both at a product and fund level.”

Success

Sometimes the debate also leads to the suggestion that fee-based models cannot work in every advice market due to the landscape.

Wing Chan, head of manager research for Europe and Asia Pacific at Morningstar, said: “While a product-led, commission model has historically dominated fund distribution in Hong Kong and Singapore, technology has enabled the emergence of digital platforms, robo-advisers and we are seeing an increasing number of alternative distribution models.

“Fund distributors and wealth managers in Hong Kong and Singapore are also placing a greater focus on building holistic portfolios that aim to align to investors’ financial goals, and we see that a key step towards the provision of more comprehensive wealth advice for consumers.”

Ian Black, managing director for Apac at Globaleye, added: “By focusing on needs and goals first and selecting the relevant solutions to deliver these we ensure better client outcomes. It is essential to deliver advice in a transparent and comprehensive manner to ensure that consumers are fully informed before making choices on how to proceed. This is very much in keeping with the UK model.

“On the other hand, many clients are unwilling or unable to work on a fully fee for service model and prefer to pay for advice through the solutions, either by commissions or by deduction from the plan – whichever is better aligned with their needs.”

Status quo

Fees may not be the standard at the moment – but is there a chance they could become the norm in Hong Kong and Singapore?

Black added: “The true issue is one of transparency rather than the payment mechanism. If a consumer is aware of the costs, both product and advice, and agrees to these it is of little consequence whether these are paid via the product or directly as a fee. One key point to be considered is the flexibility to change the solution easily as consumers’ needs evolve over their lifetime.

“There is a need however for more financial institutions to move from a reliance on initial commissions to a mix of an initial fee followed by fees for ongoing service. This will build a more resilient advice sector and better align the interests of firms and consumers.”

The unnamed source from a global wealth manager also said: “I think that giving clients the choice of paying for services via fees will attract the better-informed clients. In today’s 24/7 access to information world, many clients can do their own research online and will come prepared to talk about fees in a way that that they wouldn’t have done 10-15 years ago.

“I think as client awareness continues to increase; the industry will have to adapt, especially where high net worth clients are involved.”

Expat vs domestic

The Hong Kong and Singapore markets are quite complex – and also have a big domestic market as well as expat.

As UK expats are used to fees, the commission debate may only be a discussion in the expat market.

But according to the unnamed source from a global wealth manager, the domestic market is also regularly discussing the fees versus commission debate.

They added: “I think the idea of expat versus local models is evolving. Clients are increasingly international with a much broader footprint of investment requirements and access to information. The question of a commission or fee-based model is an industry issue and one that I don’t think ranks very highly on client agendas.”

Pyrmont Wealth’s Parfitt said: “At the moment I think yes, there doesn’t seem to be a desire or momentum in the domestic market to change.

“I think that is also due to client expectations – if you come from a country with a more mature financial planning market, such as the UK or Australia, then perhaps you just expect the same when you are overseas.”

Regulatory action

The introduction of fees in places like the UK was sparked by regulation and watchdogs.

The argument most of the time is regulators should not always step in to solve every issue – many would argue that this is the same in Hong Kong and Singapore.

Morningstar’s Chan said: “Regulations have been a key driver in the wealth management industry’s move towards fee-based advice in markets such as the UK, Netherlands and Australia.

“Based on our understanding and interactions with regulators in Asia, there is the tendency to take a softer approach – rather than banning commissions outright, the focus is on transparency making sure that investors are clear about the fees they are paying.

“Rather than a bundled fee structure, our view is that investors are best served by a clear delineation of fees between advice and investment management so they can make choices that are most suited to their needs.”

Parfitt added: “I think it will only change with regulatory intervention and in the domestic market especially insurance companies have a lot of sway and would likely lobby against this. Fragmentation in the market does not help with getting a cohesive framework.”

Lastly, the unnamed source said: “Regulators exist to protect clients and the industry that they oversee, they already have an understanding of how things operate in their markets. The question is: can they, should they do more? I think it is safe to say that the markets in Singapore and Hong Kong are operating efficiently, but we mustn’t rest on our laurels.

“The regulator should be regularly engaging with the firms that it oversees to understand how they work with clients, including remuneration models. It should be a collaborative gradual expansion of revenue streams that increase market diversity and continue to improve client outcomes. I don’t think it is up to the regulator to solve something. It is less of a problem to solve and more of an adaptation of their regulatory approach to account for a wider and more diverse client servicing dynamic.”