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 email@example.com