Rob Reid: Client education is paramount
As the conference season beckons, I return having just attended an excellent conference in San Diego. I have been attending these conferences for 14 years now and I find they get me in exactly the right mood for the run-up to the end of the year.
I was asked to speak on the topic of the RDR and the removal of commission in particular. I was joined by a speaker from Australia who had already moved his direct salesforce to a fee-based model.
The parallels with the UK were very noticeable and in my research before to the event I had looked at Finland and the Netherlands. The Finns took action to move away from commission five or so years ago while the Netherlands made changes more recently and also tried to set a maximum on charges.
No one underestimated the size of the task but it was clear that life after commission was better for the adviser and client alike.
With little over a year to go, now is the time to get going and make the move, ensuring you do not hold back when stating the value you add through your advice and monitoring.
The news that the Advertising Standards Authority dismissed complaints about the Money Advice Service’s advertisement came as no surprise, as the complaint could equally have been levelled at many IFAs even now. Complaints had focused on the words “free advice” and advisers were incensed as the industry subsidy was omitted from any promotion.
Therefore anyone receiving the advice would assume it was free when, in reality, someone else had paid for it. Now what does that sound like? Yes, you are right, it is commission where the ones who do not buy, do not pay.
This shows the futility of the complaint itself. What advisers should have complained about is simply the absence of credit for the industry meeting the cost.
The advert could have said: “Free advice made possible by industry contributions.” However, it did not and the opportunity for goodwill was lost.
I would like to touch on the moves to embrace alternative investment for all and sundry. This cannot help our position with the regulator. We need to ensure those investing are genuinely experienced and not simply being moulded to fit.
Perhaps we need to consider how robust our methods for identifying experienced investors really are and make them even more robust before they are subject to inspection.
I have no axe to grind against alternative investments provided they are well explained and do what they purport to do. All too often, this has not been the case and I am pleased the FSA is taking action to review such investments.
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 the professional adviser’s armoury. Without it, they will be unarmed and vulnerable.
Robert Reid is managing director of Syndaxi Chartered Financial Planners