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Categories:Other

Don't undervalue your advice

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About 12 years ago, I went to see a solicitor mate of mine about writing a will for me. “Sure, no problem,” he said, “let me just switch the computer on and we will have you sorted in a couple of minutes.”

He inserted a disk into his computer, opened a file on his hard drive and started asking me questions about what I might want to leave and who to.

Every now and then, he would pull up a particular paragraph from a list on the program and insert it, or delete another paragraph, or add a couple of names and a sum of money to a blank spot in the document.

The software program was, even back then, able to flag up various tax-related issues for me to consider, on which my mate gave advice as we spoke and, based on my replies, he then amended the will accordingly, using stock phrases to suit.

The software was even able to cope magnificently with my slightly tongue-in-cheek decision to bequeath various items of clothing to my partner, who had a habit of “borrowing” them from my wardrobe and wearing them herself.

I was reminded of this experience when reading the responses to my column last week, in which I asked whether offering “free advice” to clients and being remunerated by means of commiss-ion received for a product sale relating to that advice was a sensible business strategy.

For many IFAs who have replied to my column, it clearly is. They do not see an issue with offering their clients a free financial report in the expectation of winning business off them.

It must be said that while there is no reason at all to prevent an adviser from operating in this way, it does beg a few questions.

Probably the most obvious one is that of what happens if the client likes the report but prefers to execute it elsewhere. In that case, the IFA has just wasted a few hundred quids’ worth of time compiling the document, not to mention paying for the software that allowed him to knock it out in the first place.

More important, certainly from a philosophical point of view, is the question of what the client is actually paying for when he or she agrees to this kind of deal. It cannot be the advice itself, which is deemed to be so devoid of value by the IFA that it is not even worth charging for.

The only answer I can come up with is that the IFA is right and the report is rubbish. That is not as far-fetched as it might seem. About 10 years ago, I acted as a guinea pig for an adviser who offered me a report in return for answering a number of personal financial questions about myself.

The report, compiled on the same basis as my lawyer friend’s, simply told me what I knew already - that I was underprovided in terms of my pension, I needed more life insurance and I should strongly consider the merits of a PHI policy, among various products. It declined, however, to tell me what to do with my existing investments, or the best life cover and PHI policies for me to buy.

If that is all a “free report” is about, IFAs are probably better trying to make money by earning commission on a product sale. Conversely, if I were being asked to pay for “advice” as shabby as that, I would feel cheated.

A genuine financial report, one worth paying hundreds of pounds for, not only calculates how much your pension lump sum will be worth in 20 years time, for example, along with a pretty little graph. It also looks under the bonnet of your existing policies, tells you how they match your risk profile and potential expectations and offers a range of very specific options about where to invest your money instead.

It is the kind of report that clients could, if they wanted, take anywhere else and act on its advice if they chose to. Except they would not want to, because the thoroughness of the report, plus the IFA’s competitive charges for carrying out each transaction on their client’s behalf, would make it much easier to trust the adviser to do it for them.

Ultimately, that is how other professionals work, surely. You will not see a chartered accountant write you a free detailed report about every specific point of tax law that he expects to raise with HMRC on your behalf. Or a lawyer send you, free of charge, a draft of a letter he proposes to send on your behalf to someone you are suing.

After all, if you have gained a massive body of knowledge and expertise over the years, not to mention paid thousands of pounds for the technical software you need to help your business, why would you give it away for free?

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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Readers' comments (36)

  • I agree completely (!), though let us not assume that solicitors always provide comprehensive or even best advice just because they always charge a fee for it.

    I'm presently looking at the affairs of a moderately HNW couple. Some years ago, the husband's mother set up a Trust fund naming him and his wife as beneficiaries in specified proportions, with the balance divided equally between their children. As it happens, the couple are quite probably never going to want to claim their share of the trust fund but, because they're shares of it are specified, it looks like it may well be an Absolute rather than Discretionary Trust, so quite why the solicitor recommended the former rather than the latter is something of a mystery. Also, the only two trustees are the husband and wife (the settlor is now deceased) so, should they both become unable to act, the Trust will effectively become rudderless. Whether or not the Trust affords scope for the appointment of additional Trustees is something else we've got to try to establish.

    But, by and large, I agree completely with Nic. A "report" for which no charge has been levied cannot be anything more than a speculative pitch for a commission-generating product sale.

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  • We always charge for the report. We tell the client how much it will cost before we begin.
    Upon receipt of the report the client can act upon it through us or elsewhere if they choose.
    We cannot afford the time and effort to compile a comprehensive report for free. Indeed why should we? We believe the value is in the advice.

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  • I agree with Nic however I wonder at what point do we receive the charge as unless the client hands over a cheque in exchange for the report then there isnt much change from the norm.

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  • Totaly agree the value is in the advice but also the experience, empathy and expertise that makes the advice possible.

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  • In all the years I've been reading Nic's columns this is the first one I agree with whole heartedly.
    At last Nic you make sense.

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  • Its very easy really...Yr Terms of Engagement should be signed by the client agreeing to yr fee basis & can then be legally enforced if they fail to pay/alternatively they get the report after they pay the fee. Its not rocket science!!

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  • Here we go again, let's compare a solicitor or accountant with an IFA, more cheap shots at our expense. The two have no correlation, Solicitors are transactional - we use them for a particular need, accountants when we have to talk with HMRC, submit reurns, prepare accounts etc all transactional. You ask either for an opinion then they'll provide at no cost, similarily an IFA can give an opinion at no cost, written or verbal, the IFA then charges to transact the business and offers an ongoing service for a cost. Please get off the moral high ground and go and run a business then let's read the smug remarks.

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  • Nic

    When you went to see your lawyer friend were you happy to pay whatever fee he asked for before you knew the level of his expertise and the quality of the Will?

    Did you pay his fee?

    The problem is that with accountants and solicitors, the public know that all will charge a fee and, without a recommendation, have to risk that the advice may be lacking or even bad. Whereas the public know they can still get "free" financial advice from, for example, the banks.

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  • At last, an article from Nic to which I would wholly subscribe.

    But the problem remains that the vast majority of potential clients still expect 'free' advice and know that 'free' advise is available elsewhere.

    Until all advisers are singing from the same hymn sheet it will be difficult convincing 'the great unwashed' that paying for advice is likely to be better than acting upon free advice.

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  • didnt realise you actually understood what we do for a living.

    makes a nice change from the usual "anti".

    cant wait for the next instalment.

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