Reckitt House Press Release

A new IFA service: face-to-face - Online

Who are we?

·         Reckitt House is a new independent financial advice service, provided by an established IFA – Davidsons IFA ltd.

·         The service is full advice, face-to-face, but provided online using Skype.

·         Skype meetings are free with no obligation.

·         Reckitt House does not segment – all clients are welcome, large or small.

·         The fee menu is fair and competitive – 0.5% pa and a “Price Promise” to protect smaller investors.

www.reckitthouse.com

Why Reckitt House?

The biggest challenge facing the industry going forward is the growing Advice Gap. Simply put, this is the gap between the demand for financial advice and the supply. While demand has remained reasonably constant, supply has declined for three main reasons:

·         Banks pulling out: For better or worse, the banks were the advisers of choice for millions.

·         Advisers increasing fees: The switch from commission has seen an increase in fees.

·         Advisers segmenting client bases, focusing on High Net Worth clients at the expense of day-to-day financial planning.

The result is more damage to trust within financial services and a growing DIY market. But this is a reluctant DIY market – most people still want guidance, or help, they simply want it in a way they can trust and feel comfortable with - and they don’t want to pay high fees.   

Reckitt House – IFA of the future

·         Reckitt House can reach a national audience by using Skype to undertake client meetings.

·         This retains the traditional, personal service, but in a modern, internet-friendly manner – personal but convenient.

·         Skype allows cost-effective contact –allowing meetings to be free, thus retaining the traditional idea of access to an IFA with no cost or commitment.

·         With no segmentation, all clients are welcome from £1,000 ISA to £1m portfolio.

·         Reckitt House fees are fair and competitive – such as 0.5% per year and a “Price Promise” to protect the smaller investor.

·         The service is even DIY-friendly – clients can use the “Route Map” and “Portfolio Build” before going direct if they wish.

For more information, please visit our site, or contact Craig Davidson on info@reckitthouse.com

Fees and Transparency

What is it about IFAs and fees? They make a big noise about being “fee-based”, with the implied professionalism that tag brings, but then try to hide the fee for as long as possible. Perhaps it’s a hangover from those commission-laced halcyon days where earning 7% on an investment bond was the norm.

Whatever the reason, having trawled through page after page of google search for “Online Financial Advice”, I’m amazed at how few advisers are willing to make clear their fees. The standard response seems to be to quote a range of fees. For example, one firm claims to charge a minimum of £750 just to meet the client, then “up to” £5,000 to produce their advice.  In another example, the ongoing fee was quoted as being “between 0.5% and 1% per year”. Even a limited grasp of percentages can see that’s double. If that was a quote from a builder, would it be accepted? 

And these examples were among the few that even quoted figures. The vast majority would only clarify the fee after a meeting to discuss your situation. Well, I don’t want to meet with anybody without knowing beforehand what it will cost and if you’re unwilling to make your fees clear on your website then I’m already suspicious. And the industry wonders why there’s a trust issue in financial services.

For those advisers who do make their fees clear, it’s hard to quantify and compare because so many firms express their charges differently. There’s the firm who have a banded fee structure, where they charge 3% for the first £250,000, 2% for the next £250,000 and 1.5% for the rest compared to the firm that charges £2,500 for the advice report followed by an implementation fee of 0.5% and an ongoing fee of £1,000 per year. There are flat-rates, percentages and itemised fees all mixed up, making it difficult to compare.        

With the launch of our new online service, www.ReckittHouse.com, we wanted to see how we stacked up against potential competitors. So, we put these different fees, coupled with a few more we could find, into a spreadsheet and it was striking how expensive getting advice can be. For an investment of £100,000, with one example, the initial fees came in at 5.75% while with another it was 3.5% - fairly typical across the board. Little wonder IFAs are reluctant to be transparent about fees.

At Reckitt House, we came in at 1.5%.

When we take into account the ongoing fees, then over the first 5 years of the investment, the total cost ranged from 6.5% to 8.5%. At Reckitt House, with our increasingly competitive ongoing fee of 0.5% per year, our total fees, including initial and ongoing, came in at only 4%.

So transparency is an issue, as is the actual fee level, but more interestingly, these fees seem to rise as the investment amount falls. Yes, that’s right – the less you invest, the more you pay. That’s because so many of these fees are flat-rate – such as the firm which charges £750 for the first meeting followed by up to £5,000 to actually invest your money. Even on a conservative estimate, an investment of £10,000 will cost about 18% - £1,800. If there is indeed a growing advice gap, where so-called “smaller” investors can’t access advice, I would suggest it is more down to excessive fees than any lack of demand.

Anyway, back to us! Reckitt House is all about being transparent, and our Price Promise will help to protect the majority of investors who simply want advice they can trust at a fair price. Being transparent (or making a shameless plug) could be about being brave, but actually we think it’s about being fair. If we feel our fees are fair to the client and us, then why not tell the world about it?

Altruistic or Fair?

Last week I saw an article in the financial industry papers suggesting that for an IFA to look after the mass-market we had to be semi-altruistic. While I understand the premise, I’m not sure I entirely agree with the description.

The idea is that smaller investors simply can’t afford to pay the increasingly high fees charged by the modern-day IFA. So, if IFAs wants to look after these clients – and the evidence is that most don’t – they will need to exhibit a certain charitable attitude, presumably by discounting fees or waiving them altogether in certain circumstances.

Putting aside the potential for insulting vast swathes of the investing public, I think this view misses the point. Advisers have increased their fees in such a manner as to alienate “smaller” investors. The focus is entirely on micro-costing each stage of the advice process, rather than viewing it as a whole. There is a push towards maximising profit at each stage, which includes minimising work and liability where possible.

How common is this example? An IFA who used to deal with everybody, set up investments, pick the fund and earned 0.5% per year trail now segments his database, focuses on the top-end clients, outsources the investment process and yet earns 1% per year ongoing fee. Undoubtedly he/she is more profitable, but is the new structure fair? Is fairness even relevant?

Maybe this comes down to individual choice. Does the IFA want a fat profit margin with a few, select clients, or do they want a fair margin looking after the majority? For me, doing business is about finding the right balance between profitability for the company and value for money for the client. Both parties should feel they are getting a good deal. Any client should feel they can look at our fees on offer, decide themselves whether or not they are happy to pay them and make a decision accordingly. Charitable status or altruism shouldn’t be part of the equation.

Today we launch our new online service – Reckitt House. We feel it’s clear, honest and fair. I hope clients agree.