Many years ago, I allowed myself to be lured temporarily from a career in journalism to a more uncertain but far more lucrative opportunity in the world of internet-based financial services.
It soon became clear my bosses had a penchant for putting every idea out to be tested by all manner of focus groups. The theory was the “unbiased opinions” of ordinary punters would give us a good steer when it came to making decisions about our website.
The problem, as I discovered, was it is possible to direct the outcome a focus group by the way you frame the question posed to it. To give a computer science analogy for example, data outputs are based on the quality of data inputs. This approach is known by the acronym of GIGO: garbage in, garbage out.
It is in that context, sadly, that I view a recent column by Martin Bamford in Money Marketing, discussing the fees charged by some advisers to their clients.
I say sadly because I am generally a huger admirer of Martin’s work at Informed Choice and although he may not believe it, also of his old man Nick Bamford. Both stand out as ethical champions in a sometimes depressing financial services landscape.
But Martin’s latest thoughts, in which he urges advisers to “stop being so apologetic for the many occasions where what we do adds significant value and makes positive changes to lives” completely misses the point of what the debate over charges is about.
Martin takes as his starting point the issue of so-called partially active funds, in which heavy charges are levied by many managers for essentially replicating the investment mix of far cheaper index tracker funds.
He refers in passing to “rip-off fund management charges”, an interesting turn of phrase given that I was the only person who has dared to describe them as such in my recent Money Marketing column on the subject.
Martin then offers very temperate advice to his readers, mildly suggesting that if they have any of their clients’ money in such funds they may want to consider shifting it into more appropriate and potentially better-performing alternatives, “before the regulator takes serious action”.
I am intrigued by this softly-softly approach: personally, I would have thought if any adviser was still trousering clients’ fees (or trail commission) by leaving their money in funds that do little more than ape an index tracker, they deserve to be spoken to a little more sharply than Martin somehow manages in his column.
What I am even more surprised about is Martin’s subsequent body swerve into the area of charges levied by advisers for their own services. Referring to a Personal Finance Society National Symposium in London last month, Martin tells us his father, one of the main speakers, “reminded the audience that higher charges for financial planning are justified in light of the value advisers add.”
Then, presumably referring to Informed Choice itself, Martin adds: “We certainly charge what look like expensive fees to some. In the context of what we do, though, they are excellent value for money. It is entirely our responsibility to communicate that value.”
This, unfortunately, is where GIGO comes into play. Think about it for just a second: if every adviser in the UK was permanently busy “adding significant value” and making “positive changes to lives” there would never be a need to apologise for anything, would there?
It is precisely because they are not performing those tasks, yet earning significant sums of money from their clients, that many advisers continually come under the regulator’s spotlight.
These partially active funds did not somehow magic themselves into existence without human agency. They were not all sold online, on an execution-only basis, or by dreadful life company salespeople who do not even deserve to be considered part of the financial services industry (they are, sadly).
The fact that a staggering £109bn, the equivalent of a year’s entire NHS budget, is rotting in these funds, tells us not only something about the industry’s moral bankruptcy but that advisers are intrinsically interwoven with the system that Martin decries in such a gently hushed manner. The adoption of a tone reminiscent of BBC DJ Whispering Bob Harris when discussing partially active funds gives the game away.
Martin might respond that his comments about not being remorseful are aimed at advisers like him, who do perform the role he describes for himself. The problem with this line is that if that were his target readership, then Martin should be stating far more explicitly that those he is praising for “adding significant value” is a smaller more select group of advisers than the general MM readership.
Even then, it would be an inherently vacuous argument to make: in 25 years, having spoken to literally thousands of advisers during that time, I have not met one who has ever felt pressurised into apologising to his or her clients for making them significantly richer. It just does not happen.
What worries me is, deep down, my gut tells me that Martin’s bromides are aimed at all readers of Money Marketing, telling them they are doing the right thing by their clients, even when some of them clearly are not.
As I say: GIGO.
Nic Cicutti can be contacted at firstname.lastname@example.org