Friday, 15 February 2013

The power of marketing – a lesson in RDR……

I have just received some marketing material from Chelsea Financial Services, not as big as Hargreaves but on a level. To me these companies have a responsibility to create a new world in the direct market space however clearly they are making hay whilst the sun is still shinning.

Towards the end of 2012 financial advisers were getting a battering because of hidden commission and clients not being aware that they were paying for the service they were receiving (or not as may have been the case). My argument was that in many cases financial planners had moved away from these models but the danger was in the direct market.

The direct providers do not currently have to disclose the fees they are taking, however they will -  possible as early as 2014. This will lead to a change in the pricing models for many of these providers because clients who have thought they were getting something for nothing will have to pay. We are starting to see how this might play out with some charging quarterly fees of £20 and fully rebating back any money to the clients (although rebates will go).

So why has Chelsea Financial Services irritated me. Well to me they are using the tactics that the FSA are trying to stamp out. Nothing in what they are saying is incorrect but the implication is that they are doing something for free.

To quote “and because we don’t provide advice, we don’t charge you for it, making Chelsea cheaper than most Financial Advisers.”

“You may have read in the press that Financial Advisers are no longer able to receive commission from providers of investment products…..”

“……it can be commission-type fee, which advisers deduct from the money you invest, and often on an on-going basis too…..”

The point of RDR was to ensure clients were clear on what they are paying for. The implication from Chelsea (like others) is that they are doing this for free because they are not advising. I looked in the small print and read this “Chelsea receives commission from product providers….”

I also dug through the paperwork and discovered that they feel they are not “affected by the recent legislation….”

The reality is this:

  • They are currently not affected by the recent legislation but they will be
  • They do receive commission for their service and although they take no up-front commission they appear to provide no rebates on fund annual charges
  • Possible as early as 2014 this hidden charge will have to be disclosed and they will need to charge clients a fee

It’s time these providers took responsibility for what they do  and fully disclose their commission before they have to……

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