If you engage with a financial adviser to provide you with investment services, what are those services?
Do they represent good value for the fees that you pay?
As we move ever closer to the end of 2012 and the abolition of commission on investment and pension products, the cost of advisory services is coming under the spotlight.
This was bound to happen in my view.
Commission was purported by some to be either a “no cost” option for the consumer (because it was paid by the investment or pension plan provider and some less than scrupulous individuals didn’t explain that it came from the plan charges paid by the client) or it was nicely hidden and the client was blissfully unaware of the cost (despite a quite robust “disclosure regime”).
From 31st December 2012, any payments to an adviser for services have to be agreed between the client and the adviser without influence by a product provider. These are known as “adviser charges”.
The regulator, the FSA, believes this will remove any “product or provider bias” from the intermediation system.
There is not much convincing evidence that there was product bias but that belief has driven the change.
More importantly, in my view, is not the method of payment – because adviser charging can still be paid from a purchased investment or pension product – but whether the payment represents good value for money or not.
I won’t go into the debate about the cost of delivering advice to the UK consumer other than to say it is quite ridiculously high.
A big part of the reason for that is that the regulatory and compliance costs of being an authorised and regulated firm have reached quite silly proportions and it should be noted that you, the consumer, is paying for this.
Are the following services worth paying for?
-A long-term relationship with an adviser where the advice they deliver to you is regularly reviewed and the outcome of that advice is measured in a meaningful way;
-A qualified and experienced professional who can provide you with a well thought through opinion about financial matters;
-Someone who can challenge your thinking and help you to make the right decisions for you;
-The provision of an investment service that links investment decisions to your financial planning goals and aims for protection against the worst of any downsides rather than chasing double digit returns;
-An adviser who provides transparent products rather than opaque smoke and mirrors plans which even they struggle to understand;
-The provision of regular and meaningful reporting so that you are kept in touch with what is going on;
-Regular contact to make sure that you know about the important things that are going on in the financial world.
These are some key parts of our proposition and we believe are amongst the most valuable things that we provide.
If it were simply about selecting the best product or funds from the whole of the market then quite frankly anyone could do that with the minimum of skill and experience; access to the Internet and time and inclination would be all that is required.
If you are paying for intermediary services and simply measuring the value of what you get by an increase in the value of your investment or pension pot then I have some advice for you – stop paying!
Instead go and DIY because you will simply not be getting great value for money.
Of course if you do DIY you may end up with better or worse results but at least you will be entirely responsible for the outcome.
Like with all good things in life, good advice is something that needs to be paid for but always remember it should be about value not price.
