Had a conversation with a London-based client last week about a potential challenge to the pricing of independent advice as we know it here in Australia.
It’s referred to as the “Decency Cap”, and it’s been slowly spreading in the UK advice market since the Retail Distribution Review abolished commission-based charges in 2013.
While not directly regulated by the UK’s Financial Conduct Authority (FCA), their Thematic Review of Retirement Advice, published last year, suggested decency caps for ongoing investment clients.
Some boutique UK wealth firms and financial institutions now feature “Decency Caps” on their websites—essentially maximum fees in pounds and pence they’ll charge for initial, ongoing, or standalone advice.
The idea is simple: any fee above the cap requires justification to maintain consumer trust and confidence.
Could this concept migrate to Australia?
With approximately $3.5 billion flowing into our local superannuation system every week, industry super funds, or new entrants, might see decency caps as a client-centric evolution of the highly successful “Compare the Pair” campaigns that helped industry funds dominate their retail super fund competitors.
It could also address the “greed” that Justice Hayne identified as the root cause of our banking royal commission findings.
But could they do the opposite?
The subjective nature of value
Decency sounds virtuous, but it raises fundamental questions about who determines what’s “decent.”
In the pre-deregulation banking days, I remember dressing up to meet my bank manager when I was seeking funds to expand my 1980s business ventures. Back then, the bank manager was a highly respected role whose sole incentive was upholding the standards of financial care for customers, rather than today’s roles with KPIs to meet ever-higher lending targets.
Today’s advice-seekers face many pressures to make the “right” price decision while being influenced by a firehose of information from suppliers highly skilled in making money from other people’s money.
Yet the value of financial advice experienced by a client is subjective, which makes the pricing of advice more influenced by a stimulus than a dollar amount. Stimulus pricing explains why some people buy Casio watches, while others choose Rolex.
Both decisions can be rational based on what the client values.
Subjective value has no upper limits.
This creates a market opportunity for self-appointed industry advocates to promote “decency caps” in the name of the consumers they serve.
But whose good are they aiming to serve?
What is financial advice really worth?
Financial advice is different from financial product sales.
Advice encompasses counsel, recommendations, wisdom, and relationships built on serving the client’s best interests, free from any conflicts of interest between the adviser and the client. People seek advice to save time and money to achieve better lives for themselves and those they care about, and the causes important to them.
Yet, despite the elements of advice, pricing today (regardless of flat fees, fees for service, percentages or hybrid models) remains primarily driven by product amounts rather than the wisdom delivered or outcomes achieved.
This makes decency caps on advice feel more like a regulatory top speed limit for a tiny minority of advisers who will continuously pursue their own self-interests, rather than seatbelts designed to protect the steps of every advice client’s financial advice journey.
Decency caps could become a new vocabulary empowering the product-based models of existing financial institutions while limiting independent advisers’ ability to price in dollar amounts based on the value clients attribute to the advice they receive.
Institutional Power
Justice Hayne was clear: systemic greed and the legacy product-distribution systems of major institutions drove the Royal Commission’s findings.
When these same institutions promote moralistic fee limits for advice, they’re fundamentally conflicted in providing, it is more institutional power flexing to protect their market dominance in a market guaranteed to supply them with an additional $3.5 billion of new funds every week.
There is a good debate for decency caps on financial product fees, but not on financial advice fees.
The broader question
I don’t believe decency caps are about advice fee levels— they are about continuing to control a product-based narrative of financial advice.
Decency caps might sound consumer-friendly, but they could inadvertently strengthen the same institutional dominance that created the problems decency caps supposedly address.
One message is clear for owners of great financial advice firms.
Work even harder to improve your team’s ability to consistently, uniquely, and methodically articulate the value of your advice relationships to your clients.
The future belongs to those advice teams that can control the value conversation with their clients.
What do you reckon?
Jim
Photo Credit: Fees_text-on-puzzle-background-Canva-photos-MADJndmhJj8