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Jason Butler: Do you always serve the client’s best interests?

A few months ago, I pulled a muscle in my lower back which was total agony. I went to see a sports therapist, who carefully and diligently carried out an examination. She then carried out a massage to ease the inflammation.

At the end of the consultation, the therapist gave me some advice on exercises I should do each day to help ease the pain, and advised me that I should return for a follow-up massage in two weeks.

I duly returned to the therapist two weeks later, feeling much better having carried out the physiotherapy she recommended for me.

After she had carried out the massage she said: “While you’re welcome to come back for more sports massages, I don’t think that’s necessary. If you do the exercises I’ve advised, you should be fine on your own. Feel free to come back if you have any further symptoms.”

This story demonstrates true professionalism. The therapist had more knowledge than me on what I needed. I’d have happily paid for more treatments had she recommended them and she’d have made more money from me. But because she put my best interest ahead of her own, I have so much trust in her that I’ve become a one-man marketing machine, introducing her to several family members and friends.

There has always been a tension in financial services between what is in the best interests of clients and the businesses that serve them.
For businesses providing financial advice and related support services, the potential for conflicts of interest is one of the reasons we have today’s financial services regulation.

Revealed: The FCA’s findings on ongoing advice

The move over the past decade by many advice firms to provide ongoing advice and service – primarily through charging a fee based on a percentage asset under investment management – has made the sector professional, capable and profitable.

But while it’s good to see all firms now having clearly defined service propositions and fee structures, I can’t help but think that a significant minority of clients are being ‘sold’ an ongoing service that, while it helps the firm meet its commercial objectives, is not in some of their customers’ best interests.

An ongoing advice service might not be in a person’s best interests if the cost of providing it outweighs, on any reasonable measure, the benefits provided.
For example, delivering peace of mind and saving people time are valuable benefits, but are difficult to quantify and measure. Whereas taking all the equity risk premium from a client’s portfolio through ad valorum advice and management fees is not.

In some situations, your service won’t be appropriate for clients, and turning them away, as many firms already do, will be the right thing to do.

But what about clients who would get value from ad hoc advice or perhaps only need to pay for a review every three years, or when a life event happens?
Do you have a service proposition that serves their best interests
or do you still provide them with an ongoing service that does not?

Jason Butler: The real reasons people take professional advice

Suitable and appropriate advice should also consider value for money for the customer, not just meeting their financial objectives.

In that respect, making sure you have an approach that ensures you can demonstrate that the service you provide is appropriate and good value, will minimise conflicts of interest and turbo-charge your marketing.

Jason Butler is head of financial education at www.salaryfinance.com

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. …all well raised points but are your larger clients picking up the tab and carrying the costs of running the firm for the smaller / ad hoc ones…..We also find that those clients who say they may wish to work with us on an ad hoc fee basis are usually the one’s who need the on-going advice / support and end up making regular contact seeking advice far more than most !!

    • Nick

      I have been working on a fee bases since 1992 all be that most of the income came from commission offset against fee that could have been chargeable. From outset I used Prestwood software which included a back office system One of the faculties within that back office programme in 1992 was a time ledger so that any commission or fee income received was credited to the client account and any work carried out on behalf of clients. If the client had an annual review one of the agenda items was Time spent on your affairs At the meeting a print out for the year was presented to the client If there was a surplus our client agreement at the time stated that surplus would be carried forward and used to offset work carried out
      Over the last 26 years I have had clients that came to us for ad hoc advice The same principle applied if we received commission the client new that commission belonged to the firm but would be accounted for regardless if they came back to us
      Recently I had a client that came back to me for advice. I informed him that to date his account had £350 credit balance from initial and renewal commission We estimated the cost of the work and agreed to be paid by adviser agreed payment facilitated by the product provider. We carried out the work less surplus balance and presented him with the invoice This was paid
      I cannot see how that client has been for as you stated
      “larger clients picking up the tab and carrying the costs of running the firm for the smaller / ad hoc ones”
      What Jason is getting at and I am sure the FCA will raise the question what are you the adviser been paid for in respect of on going advice Some time I wonder my self when I hear we charge 1% AUM
      Recently I was have a conversation with an retired business man who was introduced to an adviser He asked the adviser one simple question OK if I give you 1% for managing my money What will I get each year for my £40,000 The adviser in his mind could not answer or justify the fee So got up and left He said he went to four other advisers /wealth mangers asking the same question Eventually he had a meeting with an adviser who asked him how he like to work with him (the adviser) They agreed a flat fee and an agreement on how they would work to gather
      That is Jason point that you should be professional enough to say to a client you do not need full service and maybe you are better to have ad hoc advice and come back to us if and when you feel you need to

  2. Jason I had a problem with a nerve in my back had treatment and after four session the osteopath said that it use the ice pack for a week Let your body tell you when time to start exercising again.
    If have problems again come back to me
    When I speak to any one who has or had back trouble His name is quite often the top of the list to go a make an appointment with or recommend
    Can understand the point and the you made analogy you made

  3. I had a charity client come in recently, we work with a DFM who has a charity department who are proactive, and he asked whether he still needed our services. In all good faith I could not see that we were needed anymore, so I resigned, which is what he was hoping to hear and we parted on amicable terms.

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