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Nic Cicutti: Why I’m a value of advice convert

My first instincts about a Royal London-sponsored report were wrong. Now I urge everyone to read it

One of the things you learn after more than 25 years writing about the financial advice industry in all its diverse forms is how the sector so often behaves in a self-congratulatory manner.

Advisers regularly find the time to pat themselves on the back, be it in print form or at conferences and other events.

I still remember with a strange mixture of awe and nausea how, back in the 1990s, advisers’ conventions would regularly wheel out a succession of lachrymose widows and orphans to address their audiences. Their key message always seemed to be that taking an IFA’s advice had been the best decision their husbands or fathers ever made, in tragic hindsight of course. They were also subliminally telling their adviser audiences what a wonderful service they were providing their clients.

It is hardly surprising, then, that when I spot a headline telling me a study has yet again “proved” advice leaves those who take it better off, my natural temptation is to quickly cross the road. This helps explain why, when I first saw there was a report published by the International Longevity Centre in July which attempted to quantify precisely by how much those who took advice were better off financially, my first instinct was to treat it with suspicion.

Advice profession remains in rude health, latest report shows

My chief concern was about the methodology of the report. How do you measure exactly the difference between someone who took advice and another person who did not? What kinds of advice are we talking about? And how do you differentiate between those who are affluent already, who take advice and become even better off, and those whose financial resources are far more limited and stand to gain less from the process of taking advice?

Thankfully for me, my colleague Jeff Prestridge, personal finance editor of the Mail on Sunday, is made of sterner stuff and actually studied the report, subsequently writing about it with great enthusiasm. His enthusiasm made me go back and read it for myself. It must be said that the 46-page report, entitled Value of Financial Advice and which is sponsored by Royal London, is an exceptionally good read.

The most striking thing is that, unlike the overwhelming majority of self-aggrandising accounts of the role of advice, based largely on surveys in which punters answer questions put to them but do not really quantify their responses, this one wears its underlying statistical processes proudly on its sleeve.

The £40k value of advice – and how to make the most of it

For example, if you want to understand how a group defined as “affluent but advised” managed to accumulate 17 per cent more in investments and 16 per cent more in pensions than its “affluent but non-advised” counterpart, this report will tell you precisely how.

The Value of Advice contains a wealth of information that builds up a general picture, layer upon layer, which is very robust. More significantly, the report also raises some key public interest questions that need to be addressed by the Government, regulators and employer organisations.

Maybe it is time we considered more seriously the recent suggestion by Jargonfree Benefits director Steve Bee  in Money Marketing for a free national advice service for the less affluent in our society

One of the most interesting findings to emerge is that while, yes, those who were already affluent are more likely to take advice than those who are not (no surprise there), one of the biggest drivers to seek advice is financial capability – that combination of knowledge and skills which improve a person’s ability to manage their money during life events.

The report found that highly financially capable individuals with less than £500 in assets are only 2.8 percentage points less likely to receive advice than the least financially capable people who have more than £36,000 in financial assets (19 per cent compared with 21.8 per cent). In other words, financial capability is a stronger driver of the demand for advice than wealth.

The implication in terms of how the Government should be aiming to massively improve levels of knowledge and understanding of financial issues, as well as broadening them out to cover related topics such as investments and pensions, are massive.

The outcome of such a strategy could be a game-changer in terms of the potential long-term savings of millions of households in the UK.

The other key issue for me was the variation in relation to the term “financial advice” that people in the report were defining themselves as making use of. It covered a wide assortment of advice, from the expected in the form of banks, wealth managers, advisers and so on, to trade unions, the Citizens Advice Bureau and even the much-maligned Money Advice Service.

This, in turn, led to a lack of differentiation between what I define as full-fat advice and the more generic guidance provided by some of these organisations.

Maybe it is time we considered more seriously the recent suggestion by Jargonfree Benefits director Steve Bee here in Money Marketing for a free national advice service for the less affluent in our society. This too could be transformative for millions of families.

These are two issues that urgently need to be addressed. In the meantime, I want to doff my cap to a document which both quantifies the benefits of advice for the first time, while simultaneously putting forward ideas as to how to ensure some of the gaps in the willingness of consumers to take a closer look at their financial needs might usefully be addressed. I urge everyone to read this report.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. To continue-I am concerned that retrospective findings of bad/poor advice have proven correct but there has been no admission of this for example pouring personal money into dodgy schemes recommended by qualified advisers has been ignored , but for those putting money into their company run schemes to top up litigious action and compensation was paid out but the client was ultimately the loser!!!

  2. Trevor Harrington 21st September 2017 at 3:58 pm

    Of course, “a free national advice service for the less affluent in our society” such as your suggestion, and Steve Bee’s suggestion, always used to exist before the commission structure was abolished.

    Before you roll your eyes and decry this as another diatribe calling for a reversion to commissions, and denigrate the cross subsidy that was involved, may I make the following points :

    Commission, and the market forces which it facilitated – namely that of enabling an element of cross subsidy and therefore the “less well off” being a viable proposition to Financial Advisers – was only a failed model, because the Regulators, and Financial Advisers, all failed to control it properly.

    I may also add that, the so called fee models by which we are governed today, are also spectacularly failing for very much the same reasons – notably, that the client has absolutely no idea how much he/she is paying the Adviser throughout the course of any particular year, and therefore has no idea of how to weigh up the cost of the Adviser Vs the benefits and services provided.

    The issue was, and still is, the control of excesses … be that the control of excess commission earnings or indeed excess fee earnings, within the various financial professions, including those within financial advice services.

    Those who previously ranted for the destruction of the commission system, rather than the control of the obvious excesses within it, have simply succeeded in making the provision of quality financial advice something which is only available to those with the ability to pay.

    We still have excess charging, much of which is hidden from the client, even more hidden now, than was the case under a commission structure, but there is now little or no attempt by Advisers to cross subsidise into the “less affluent” – why should we?

    We will not be able to resuscitate the commission system, and I am not advocating that we should attempt to do so – we are where we are. However, we really do need to Regulate excess charging in the current so-called fee landscape, and to my mind, the only realistic way of doing that is to regulate Advisers into an enforced annual total fees and commissions statement to all clients.

    As far as the “less affluent” are concerned, I am afraid that they are a lost cause. You will not be able to get Advisers to do very much free work for that community, as we are already assailed by huge amounts of non paying work such as regulation, and we are not keen to add to that burden – thank you very much.

    If you want to blame somebody for the loss of advice to the “less affluent” then you need to look at the Regulator, and the journalists who found it profitable for themselves and their own scribblings, to encourage the Regulator to do what it did – it was called the RDR -rather than focus on the true malaise, which was uncontrolled excesses in the commission system.

    Nic – would you know any such journalists … no … I thought not …

  3. Did you enjoy your holiday Nic?

    As for financial advisers patting each other on the back, when a client has told you that you’re the best thing that ever happened to him financially, it’s natural enough to want to share that with a few people, wouldn’t you say?

  4. Here’s a real-life example of the value of advice. I saw a couple recently who wanted advice in a few areas, including making the most of the cash they have towards buying a house. Between them, they have around £60k cash kicking around so they can afford our non-contingent basic advice fee of £695. The advice I would have given them would have saved them £1000 straight off, guaranteed. After that, all the other advice would for them effectively have been free. The BAF would have more than paid for itself.
    Unfortunately for them, they don’t want to pay anything. They thought they could just pick my brains for free. I politely explained that we only start giving advice once a client & fee agreement has been signed. A lot of tripe gets talked about the supposed ‘advice gap’. The reality is that a lot of those in the gap can afford to pay for advice but just don’t want to. Fine. I’ve learned the hard way how to deal with the freeloaders and brain-pickers, but I still meet plenty of advisers whose time and expertise is being abused and exploited by such people. As a profession, we need to learn to say “no” a lot more often and get the message over that those who can pay but won’t pay don’t get to play. Not at our expense anyway!

  5. To be frank Steve Bee and the idea of a national advice service is of interest to me.

    I have to admit with all the levies and fees we pay, two years ago I would have scoffed at the idea of another quango milking the industry for some quasi-political ideal.

    However these days since MAS and pensionswise have been created, pensionsiwse have been a great source of new clients for us. Nothing like I expected. Well informed clients with a clear idea of what they want.

    Dont get me wrong there is still huge gaps in knowledge and careful planning and explanations are key. However the typical client is better informed and that help my conversation and explanations. It also taken as standard that we charge for all we do including initial review fees,implementing our recommendation fees and ongoing review fees. That in itself is progress.

    Maybe the talk of

  6. To be frank Steve Bee and the idea of a national advice service is of interest to me.

    I have to admit with all the levies and fees we pay, two years ago I would have scoffed at the idea of another quango milking the industry for some quasi-political ideal.

    However these days since MAS and pensionswise have been created, pensionsiwse have been a great source of new clients for us. Nothing like I expected. Well informed clients with a clear idea of what they want.

    Dont get me wrong there is still huge gaps in knowledge and careful planning and explanations are key. However the typical client is better informed and that help my conversation and explanations. It also taken as standard that we charge for all we do including initial review fees,implementing our recommendation fees and ongoing review fees. That in itself is progress.

    Maybe the talk of a national advice service is due.

  7. Come on,, All we need is a Voucher System, Give the so called “Less Wealthy” a Government Voucher to spend on Financial Advice, with Regulated Advisers, we all win and the Cost is only spent on Advice, and not expensive accommodation, wages and fully funded pension schemes, The TV Advertising then would be simple. Contact your Inland Revenue Office, get a voucher and make an appointment. The Basic client would be covered with an advice fee of £500, a lot less than MAS!!

    • What Govt. wants is for someone else to pay. MAS/NAS whatever would be funded by our industry and govt. loans.

      The thought of govt. needing to pay for people to get advice is not on their agenda. It’s all about sounding concerned rather than actually being concerned!

      • Who ever, from where ever the cost of MAS or its clone!! was to be recouped, simply picks up the tab for the voucher,, its not an additional outlay its simply a better way of providing Education, after all, we all went to school!!! The vast majority need advice not additional education by STUPID telly adverts, whoever signed these Auto Enrolment and PPI deadline adverts off, needs sacking, they have my name!

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