Nic Cicutti: The right price for advice
A few weeks ago, a friend of mine came home after a few days staying with her parents over Christmas to find herself locked out of the house. She had left her keys at her parents’ home several hundred miles away, none of her neighbours had a spare set and she felt unable to break in.
So she did what many harassed homeowners do in similar situations, called an emergency locksmith and waited for him to turn up. Two hours later, a dirty van chunters down her street and stops outside her house.
A scruffy geezer gets out, drills out her old lock, fits a new one, gives her two keys and hands her a bill for £185 plus VAT. She paid with a credit card - yes, he even had a machine to take her money - and he was gone. Total time spent in site - less than 25 minutes and that included processing her payment.
Daylight robbery, clearly (actually it was night-time robbery, but you get my drift). Apparently, these firms charge a call-out fee of around £50 and a half-hourly rate of at least £50 an hour, plus a hugely inflated cost for new locks and keys.
I mention all this after reading the survey in Money Marketing last week by CoreData, whose poll of more than 1,000 consumers found that half of consumers polled who are not currently receiving financial advice on a regular basis would consider using an adviser but would only be prepared to pay an average of £155 for a financial review. If charged on an hourly basis, consumers would be prepared to pay an average of £39 an hour for advice.
For most of us who have read similar surveys before over the years, none of this comes as a surprise. The value that consumers place on financial advice is frighteningly little, or so it seems. Indeed, according to CoreData, up to 10 per cent appear to believe it should be completely free, which is an intriguing thought. Maybe those polled believe that financial advisers are like church ministers, whose homilies also tend to come at no charge.
The reaction of many advisers also comes as little surprise. A large number will point to the way the RDR will effectively drive them out of business by introducing charging structures that consumers do not appreciate and will not pay for.
Actually, I prefer to look at this kind of survey in a slightly different - and more positive - way. First, let’s look at the remuneration issue itself. According to CoreData, the average amount consumers are prepared to pay is about £40 an hour.
Bear in mind that this includes people who have never used an adviser before, do not know what she or he does, the services they can provide, the preparation involved in giving that advice or the financial overheads they face in their daily activities.
In effect, what the people being polled have done is to take a look at a random individual in a suit and say to themselves: “Assuming I come to you for a particular service, how much should you be paid a year?”
Intriguingly, the figure they arrive to for a typical 40-hour week is something in the region of £75,000-£80,000 a year. Now, that’s not a bad whack for most white collar jobs, so it is hardly surprising that it was the average hourly rate respondents gave the CoreData researchers.
Contrary to the “I told you so” comments left on a number discussion forums where this survey has featured as a story, what this tells me is that advisers - and those who supposedly represent them - do not do a good enough job explaining what it is they do for the money they are paid.
Ironically, if you talk to any good, competent financial adviser, they will tell you that once their clients understand what is being done for the fees they charge, very few balk at the amount they are being asked to pay.
My second point relates to the first - what is it exactly that clients get from their adviser. In June last year, Aviva published its own report into the same subject, called The Value of Financial Advice.
The report quotes research from the Association of British Insurers, which found two-thirds of individuals (65 per cent) thought financial advice on pensions, saving and investments was worth nothing, with a further 25 per cent saying it was worth less than £200 per hour, the rate many advisers feel is appropriate in terms of their long-term business viability.
Forget for a second those who feel the £200 rate is not worth paying. What really concerns me is the two-thirds who feel the advice they receive is worth nothing at all. It goes without saying that some of those are mistaken in their view - the advice was worth “something”, regardless of how much.
But what is worrying is that in so many cases advisers somehow have failed to demonstrate any worth in their relationship with clients. If I were an adviser, rather than whining on about the RDR itself, I would want to ask myself why that is and - more important - what I can do about it.
Nic Cicutti can be contacted at firstname.lastname@example.org