I doubt there are any advisers with as much public clout as MoneyBox’s Paul Lewis, so it is fortunate for us he tells his listeners to seek advice. Not everyone sees eye to eye with Paul but whenever we meet I sense we agree on about 98.8 per cent of things.
It sounds like a virtual match, yet 98.8 happens to be the percentage of DNA humans share with chimpanzees. And while I am not comparing either of us to a chimp, you can see what big a difference 1.2 per cent makes.
Take Paul’s stance on annual percentage based adviser charges, which he says are simply a tax on clients’ wealth. This is an inaccurate and provocative thing to say, unless you want to shock or goad.
Taxes are compulsory, levied by the Government on income and gains, or as part of the cost of some goods, services and transactions. Adviser charges, on the other hand, are contractual and not compulsory. The FCA says so.
By ignoring the literal, Paul uses semantics and employs the word ‘tax’ to suggest a bad or distrustful thing. But as much as we might dislike paying taxes, the core services we rely on in society are paid for through tax, with the services for the less well-off paid for by the better-off. And although I would not wish to return to commission, removing the cross subsidy from rich to poor has contributed to a wider advice gap. (Then again, it is leading to the development of different ways to deliver advice, but that is another story altogether.)
Many things we purchase include a percentage based mark-up, so should advice be any different? Several of our costs are percentage based, with regulatory expenses, professional indemnity costs and business taxes often quoted in defence. What is more, my clients are typically most comfortable with percentage based charges, with several saying they find flat rate retainers and hourly fees uncomfortable.
Even so, there is a pressure to continuously question the basis of my fees and the value they offer, despite being constantly reminded how clients measure value in a variety of different ways. It is not always about the money.
So while I disagree with Paul that fees are a tax on my client’s wealth, admittedly they can be a drag: there is a limit to the amount of adviser ‘alpha’ that can be generated. With this in mind, occasionally I do explain to a client why the current arrangement is not providing value for money, in my opinion.
We then look at changing how we work to see if we can reduce our fees, moving to a lower percentage rather than an alternative method. This approach seems to work.
Most decent politicians argue that the Government needs a strong opposition to provide checks and balances and to hold it accountable. And while I am far more comfortable by the 98.8 per cent of things Paul and I agree on, it is the 1.2 per cent difference that challenges me to evolve and improve what I do. Vive la difference. Though he will not make a monkey out of me.
Dennis Hall is managing director of Yellowtail Financial Planning