The debate about how much independent financial advice is worth and how it might be paid for continues.
Since the abolition of commission in respect of investment and pension products and its replacement by adviser charging, the Financial Conduct Authority (FCA) has added further fuel to the fire of debate by expressing its concern about ‘dealing bias’.
The majority of advisers continue to charge only when there is a product solution emerging from the advice and charging their fees (usually expressed as a percentage of the investment) from the product itself introducing in the regulatory view this dealing bias.
In other words for most advisers and consumers ‘commission’ has simply been replaced by ‘adviser charging’.
The FCA seems genuinely surprised by this but frankly we are surprised that they are surprised!
Most of us had already worked out what was going to happen way before the start of the new Retail Distribution Review world.
There are however some advisers (like us) who do charge for advice either on an hourly basis or (like us) a fixed project fee. This is in recognition of the fact that the most valuable thing we do is deliver advice and financial planning services.
That is not to say that the implementation of any product has no value, simply that more value rests with the advice service.
But some of our peers claim certain things that we believe need to be challenged.
“Consumers won’t pay fees for financial advice” is something we hear quite often.
We hold the view that consumers won’t pay fees for financial advice if they cannot see the value in doing so.
And, by the way, if they cannot see value in paying fees for advice that must me our fault, we have simply failed to explain clearly enough what value our services add. More recently we have heard the question posed “How can I charge a client when my advice is to do nothing?”
In a published letter to an industry magazine an adviser stated “Walking into an IFA’s office and being told to do nothing would leave a sour taste in their mouths” (if they were being charged for the pleasure).
This is both over simplistic and demonstrates a lack of joined up thinking. It implies there is only value in advice if that advice results in some kind of financial product being needed.
The reality is that there is a lot of really valuable advice that can be delivered without the client needing to buy a financial product.
Reassurance that the existing plans held by a consumer remain suitable and robust for their needs is worth paying for.
We often find that having reviewed a collection of pension plans, accumulated during a career, and being able to demonstrate that they are cost competitive and have a sufficient range of investment funds from which to choose, delivers reassurance that is well worth the price tag we add to that service.
Frequently we find it is better (and cheaper) for our clients to simply switch the underlying investment funds in an existing plan to a more suitable, thought through, spread than to transfer to a new provider.
Saving clients money for example does not have to result in a product being purchased.
Take estate planning as an example, encouraging a client to make a gift to the next generation can potentially save an enormous amount of inheritance tax.
Redirecting savings into a pension plan can save income tax. Stopping paying for a redundant form of protection insurance can save money.
So the forward thinking adviser can look for ways to save the client real money, isn’t that worth paying for?
What it really comes down to is the advisers ability to quantify the benefits of advice and some are not particularly skilled at doing that.
Take a look at this list of possible advisory benefits and note that none of them involves a product necessarily;
-We will save you time;
-We will cut through the jargon;
-We will give you a clear understanding of your choices and options;
-We will give you a figure target to work towards;
-If you have set your own figure or target we will try to validate that target for you;
-We will always act as a “second opinion” for any financial matter that concerns you;
I pose this as a question, but I wonder do clients believe that independent financial advice has to lead to a product and are they prepared to pay for advice that delivers reassurance and confidence and so much more?
