Ben Wilkinson Personal Account

The party is over for money-grabbing financial advisers

For decades, some wealth managers and financial advisers have been making money for nothing.

They were the gatekeepers to the mystic world of investing strategies – and could seemingly charge whatever they liked. Their clients were typically only the very wealthy. But the party is over at the old boys’ club. The industry is now entering a watershed moment. Britain’s biggest wealth manager, St James’s Place, which has 900,000 clients, this week announced it was to cut fees and abandon punitive exit charges. The announcement came after intense pressure from City regulator the Financial Conduct Authority. The company’s share price had also fallen by more than 40pc this year and claims management firms say they have won millions of pounds back for clients who were paying for advice they did not receive.

But key to this week’s victory, it seems, is the FCA’s Consumer Duty. The new rules, which came into force this summer, mean companies have to prove that their customers are getting a fair deal – or face the wrath of the regulator. In theory, this should mean no more unreasonable charges and no more onerous terms buried in the small print.

There are decent financial advisers who care about your interests rather than their own. But for too long financial adviser fees have been opaque and costly, difficult for the consumer to understand and harder still to justify. They are also levied at a percentage of the wealth, rather than a flat fee.

Among the plethora of costs include initial advice fees charged when first establishing the client’s financial situation and tailoring a strategy to fit their goals. Ongoing advice fees are then charged every year on top – even if their client’s circumstances or goals have not changed. And there are pricey exit fees that hold customers hostage to their wealth manager, locking them in a costly spiral.

For years, advisers have increasingly lost their more lucrative perks. Advisers were banned from pocketing commission from client investment portfolios a ‘The industry is entering a watershed moment. Firms have to prove their clients are getting a fair deal’ decade ago. Four years ago, St James’s Place scrapped incentives for advisers, which included cruise trips, luxury watches and cufflinks.

Financial advice is an industry shaken by scandal, from dodgy pension transfers to mis-selling. It is little wonder that fewer than 1 in 10 of us have ever trusted an adviser to manage our money. It’s a shame because a good financial adviser can, and will, make your life much richer.

The other thing at play here is that investing has been democratised by the rise of DIY investment platforms and high fees are no longer justifiable.

Savvy savers can do their own research and make their own decisions. Why should they pay through the nose for something they can have a go at themselves?

It doesn’t help that fund managers are also now consistently beaten by passive funds that simply track the market, leaving many consumers wondering what on Earth they have been paying for.

A good financial adviser is worth their weight in gold for the right client, but this shake-up of the industry is long overdue.