Explaining charges to clients: growth, contributions and value
A practical guide to explaining charges to clients in annual reviews: separating investment growth from money paid in, showing charges in pounds year on year, and linking it all to the price and value outcome.
On this page
- Why explaining charges to clients matters now
- Separate growth from money paid in
- Tips for the calculation
- Show charges in pounds, year on year
- A simple charges table
- Link the cost to the service delivered
- Language that helps clients understand
- A checklist for charges in the annual review
- Doing it for every client
- Frequently asked questions
- How should advisers explain charges to clients?
- Why separate investment growth from contributions?
- Does showing charges clearly help with the Consumer Duty?
Imagine a client looks at their annual review and sees the portfolio went up by £40,000. They feel pleased. What they may not see is that £30,000 of that was money they paid in, and that the charges for the year came to a figure nobody wrote down in pounds. The review was accurate. It just did not tell them what they needed to know.
Explaining charges to clients properly means showing three things side by side: what the client put in, what the investments actually earned, and what it all cost. This guide shows how to do that in an annual review, and why it matters under the Consumer Duty.
Why explaining charges to clients matters now
Price and value is one of the four Consumer Duty outcomes, alongside products and services, consumer understanding and consumer support (PS22/9). The FCA lists "Expectations for wealth and advice firms when assessing fair value" among its Consumer Duty focus areas for advice and wealth firms (FCA focus areas).
Ongoing charges are a large part of the picture. The FCA's review of ongoing advice found that "About 80% of revenue from adviser charges relates to charges for ongoing services from around 4 million clients" (FCA ongoing advice review). If clients pay every year, they should be able to see every year what they paid and what they received.
Clarity also supports the cross-cutting obligations in PRIN 2A.2, including that "A firm must enable and support retail customers to pursue their financial objectives" (PRIN 2A.2). A client who misreads their own returns cannot make good decisions about them.
Separate growth from money paid in
The single most useful change most reviews can make is to stop presenting one headline change in value. Break it into parts.
| Line | Illustrative figure |
|---|---|
| Value at the start of the year | £200,000 |
| Money paid in during the year | £30,000 |
| Money taken out during the year | £0 |
| Investment return after charges | £10,000 |
| Value at the end of the year | £240,000 |
The figures are illustrative only. The point is the structure: the value rose by £40,000, but only £10,000 of that was investment return. The rest was the client's own money. Presented this way, the client sees the real result, and the adviser can have an honest conversation about whether it met expectations.
Tips for the calculation
- Use the platform's own figures for contributions and withdrawals, and note the source.
- Include regular contributions, one-off payments, transfers in, tax relief added to pensions and income taken.
- Be clear whether returns are shown before or after charges.
- Where possible, show the whole period of the relationship as well as the latest year.
Show charges in pounds, year on year
Percentages are useful for comparison, but clients understand pounds. A good review shows each layer of cost:
- Adviser charges: initial and ongoing.
- Platform charges.
- Fund and investment charges.
- Any transaction costs reported by the platform or provider.
Then show the total in pounds and as a percentage of the average value, and compare it with the previous year. If charges rose, say why: perhaps the portfolio grew, or the client moved to a different service. If they fell, say that too.
A simple charges table
| Charge | Last year | This year | Change |
|---|---|---|---|
| Ongoing adviser charge | £ amount | £ amount | Up or down, and why |
| Platform charge | £ amount | £ amount | Up or down, and why |
| Fund charges | £ amount | £ amount | Up or down, and why |
| Total | £ and % | £ and % | Explained in a sentence |
Link the cost to the service delivered
Charges only make sense alongside what the client received. Where adviser charges are paid over time for an ongoing service, COBS 6.1A.22R requires it to be "an ongoing service for the provision of personal recommendations or related services", with "a right to cancel the ongoing service… without penalty" (COBS 6.1A).
So the review should set out what was delivered in the year:
- the review meeting and its date;
- suitability reviewed, which COBS 9A.3.9R requires "at least annually" where the firm provides a periodic suitability assessment (COBS 9A.3);
- any changes made and why;
- other work done, such as tax year planning or help with a life event.
Put next to the charges, this gives the client an honest basis for judging value, and gives the firm evidence for its fair value assessment. The scope of work should have described this service at the outset. See our guide to scope of work in financial planning.
Language that helps clients understand
- "Your portfolio grew by £10,000 from investment returns, after all charges." (Figures here match the illustration above.)
- "You paid in £30,000 during the year, so the total value rose by £40,000."
- "All charges for the year came to £X, which is Y% of your average balance."
- "Charges were higher than last year because your portfolio is larger."
Avoid "performance" without saying what it includes, and never let the headline value change stand in for the return.
A checklist for charges in the annual review
- Start and end values, with dates and source documents.
- Contributions and withdrawals shown separately.
- Investment return shown after charges.
- Every layer of charge in pounds.
- Total charges in pounds and as a percentage.
- Year-on-year comparison, with changes explained.
- The service delivered during the year listed.
- Every figure traceable to the platform report it came from.
The last point matters if the review is ever checked. A figure the firm cannot trace is a figure it cannot defend.
Doing it for every client
All of this is straightforward for one client and exhausting for a hundred. By our estimate, writing one annual review by hand takes about three hours, much of it pulling figures from platform valuations and separating growth from contributions.
Strata reads the platform valuation PDFs the firm already produces, separates genuine investment return from money paid in, tracks how charges moved year on year, and compares two or more periods across the whole span. Every figure is traced to the report and page it came from, it guards against mixing up clients, and it reports any file it could not read. The review comes back as a branded, editable document with year-on-year charts, adviser-only sections flagged, ready for Word or PDF. By our estimate, it takes about twenty minutes. The adviser adds the judgement and checks the figures. If you have a backlog, see our guide to clearing an annual review backlog.
Frequently asked questions
How should advisers explain charges to clients?
In pounds as well as percentages, broken down by adviser, platform and fund charges, compared with the previous year, and set alongside the service the client received.
Why separate investment growth from contributions?
Because a rise in value can be mostly the client's own money. Showing contributions and investment return separately tells the client what their investments actually earned.
Does showing charges clearly help with the Consumer Duty?
It supports the price and value and consumer understanding outcomes, and it gives the firm evidence for its fair value assessment. It does not on its own make a firm compliant; that depends on the value actually delivered.
See how Strata separates growth from contributions in every review, or book a twenty-minute demo on Microsoft Teams with Adam Booth, run live on a demo firm with nothing to prepare.
