I blame Robert Reid for this column. After all, if he had not penned one of his comment articles last week, in which he let slip that he has just come back from some far-flung foreign conference lecturing the natives on UK financial services issues, I would not be writing this article.
As it is, having returned from San Diego, in which he spoke on the RDR and the removal of commission, Rob then proceeded to do what he does best – riffing about this and that, such as the Advertising Standards Authority’s rejection of complaints about the Money Advice Service and the appropriateness of “alternative investments”.
But it was a final thought in his last couple of paragraphs that really set me thinking: “After the last two market corrections, we need to ensure clients understand risk and have the capacity to take the worst impact from these alternative products.
“Clients want the best of both worlds, they are greedy but cautious and this is impossible to deliver. Education of clients will become a necessary part of he professional adviser’s armoury. Without it, they will be unarmed and vulnerable.”
Forget the bit about alternative investments, it is his view of clients themselves that hits the nail on the head – greedy but cautious.
As it happens, I recognise that duality in lots of people I know. Although the precise level of each feeling varies between individuals, all of us are controlled to some extent by similar emotions. In my case, I would say I am more of the “greedy but fatalistic” type.
What is really important about Rob’s observation is his follow-up to the effect that education of clients is key to the process of advising them. You see, I have had that same feeling for a long time.
Over the years, I have come across a range of adviser “types” within the IFA community. Three of the most common are the Doctor, the Hi-Fi Salesman and the Teacher.
The Doctor is the person you go to with a problem and he then offers a solution. You are not required to know what the solution really is, just that he has found the right one for you and, as long as you wait a few months or years, it is bound to come good. If it doesn’t, it can be tweaked a bit until it does.
One of the advantages of being a Doctor is the client thinks you are omnipotent. The disadvantage is that the minute things go wrong, he or she will realise they have not got a clue what the Doctor was doing with their money, which is when the problems start.
The Hi-Fi Salesman is a different kettle of fish. Here, the client knows they are seeing a serious specialist. He (it always is a he) knows everything there is to know about Blu-ray, home cinema packages, subwoofers, multi-channel power amps, processors and music servers.
He is not averse to sharing this knowledge with you and will happily tell you all about a system’s tonal differentiation and line outputs. The only slight problem is that you do not understand a word of what he is saying and take it on trust that what he is recommending will actually work for you. As often as not, you will end up with a 46-inch telly in a 10ft square living room.
The Teacher is the one who not only wants to sort out your finances, he also wants you to know why he is doing it, what the consequences are and how it could work in your favour. The price of seeing a Teacher is not only the charge for his financial advice but also being lectured on what is good for you. As long as he or she is not too didactic, that’s fine by me.
Of the three, I would rather have a Teacher talking to me than a Doctor or a Hi-Fi Salesman. When I see a financial adviser, I am not just expecting him or her to sort out my finances and investments. I want someone who will have a dialogue with me, who will explain and educate, who will rein in some of my wilder flights of fancy about an investment idea I picked up in the Sunday newspaper. He will also introduce a fresh idea I had not considered and tell me why it makes more sense than mine.
I realise that in so doing, the chances are I will initially be paying far more for advice than someone who simply relies on the IFA telling someone what is good for him. But over the long term, it is better for the adviser to educate me, if only so I start to understand more about why certain decisions are necessary and how to avoid costly mistakes.
Such a relationship is also good for the adviser, in that at least he is forced to think carefully about why he is making a particular recommendation. The process of explaining why is often a useful aid to clarifying the advice in his own mind.
Which is why Robert Reid’s conclusion about his clients – that without education they will be unarmed and vulnerable – applies equally to advisers themselves. It really is in your interest to start educating us.
Nic Cicutti can be contacted at firstname.lastname@example.org