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Nick Bamford: I’m throwing down the gauntlet on value of advice

Nick Bamford

I would like to take the pricing debate to the next level. With the backing of Money Marketing, I am proposing a reader competition to demonstrate what it is advisers actually do for their clients, how they price their services and how they add value to their client’s lives.

My idea is for readers to write and submit an engagement letter setting out all of the above based on the following case study.

The case study

Paul and Kim have approached you as a respected local adviser. They want to establish if it is  possible for them to retire now. They have various financial arrangements in place briefly described below.

Paul is 59 and Kim is 58. They are both in good health.

Both have deferred final salary pension schemes payable from age 65. They wonder if they should take the benefits now either in the form of a full pension or a reduced pension plus a tax-free cash lump sum. Paul has a Sipp he has self managed over the years and Kim has a personal pension plan part of a group arrangement through her current employer.

They have recently received a substantial inheritance which is currently in a bank account earning no interest at all.

They have both saved in stocks and shares Isas and have a small portfolio of direct shares.

They own their own home which has a very small outstanding mortgage.

Their two children Alan and Emma are grown up and financially independent. If possible Paul and Kim would like to help with the cost of private education for their grandchildren.

Paul and Kim are ready, willing and able to complete your fact-find and risk profile questionnaire. They will also let you have the spreadsheet they use to manage their expenditure.

Their goals and objectives are primarily the ability to retire now and have the retirement lifestyle that they want and to assist with education costs for their grandchildren.

The challenge

You will notice there are no numbers in this short case study. The challenge is to write an   engagement letter setting out in detail;

  • what it is that you will do for them (your proposition)
  • detailing how much you will charge (for advice, implementation of any solutions and any review service you offer)
  • explaining why your services will be of value to them

The winner

The winner will be the writer of the engagement letter who in the opinion of the judges best explains the link between price and value in their proposition.

The judges will include an expert panel of advisers (including myself) and Money Marketing commentators, who will pay particular attention to clarity, transparency and detail. The best entries will be ones that are clear and concise.

Details of the winner will be revealed by Money Marketing over the coming weeks.

Please email your entry to natalie.holt@centaurmedia.com

Nick Bamford is executive director at Informed Choice

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Comments

There are 36 comments at the moment, we would love to hear your opinion too.

  1. Steven Pearman 3rd March 2017 at 2:45 pm

    Great way to see what your competition are doing Nick without giving any information away your self.

    Could you tell us all who the panel are please, how they will pay for the time they spend on this and what value they think they bring to this information gathering exercise. You could start the ball rolling yourself?

    • Hi Steven

      I’m not sure Natalie has selected the other judges I’m sure she will tell you when she has

      Let me have your email address and I will send you a copy of the engagement letter we use and if you like I will happily share it here.

      No one is being remunerated for this it’s about helping each other you can join in if you like

      Best wishes

      Nick

    • You cynical old fart!

  2. Very good idea – I have sent my entry but I fear it will fall well short of the high standards expected

  3. scoot cribbens 3rd March 2017 at 3:21 pm

    better things to do with my time than share all my hard work and lessons learned with a so called “panel of expert advisers” . . .

    • Hi Scoot

      It’s ok it’s not compulsory for you to join in.

      What I have learned over many many years is how generous advisers are at sharing stuff they do knowing that competition amongst us is so rare.

      Happy to share our engagement letter with you if you want to see it

      Best wishes

      Nick

    • But i do have time to read the articles and make pointless comments. Anonymously. Jees. Your industry is being humped from every corner and still you act like this

  4. And the winner’s prize is what precisely?

    I’ve much better things to do with my time, Mr Bamford.

    • Hi TGIF

      As I said in an earlier reply the one thing that stands out for me is the amount of help advisers give to one another knowing that there is rarely direct competition with each other.

      I’m not sure what the prize is I’m sure Natalie will let us know

  5. Ross Glanfield 4th March 2017 at 3:44 pm

    Nick, if you are going to hold yourself out as the arbiter of best practice, perhaps you should publish what you believe is a model answer to your AF5 question

    • Hi Ross

      I am not holding myself out as anything other than trying to move a redundant debate away from just price to price/value through an engagement letter process

      It would be great if you could join in and I have committed to sharing my engagement letter with any one who wants to see it

      Nick

  6. From memory Nick shares a lot about his processes and in particular his engagement procedure at the various events that he speaks at.

  7. ahhha! Put all their money in passive funds and give no advice as that’s cheapest…. sorry I am being cynical now to the ‘passive for everything’ aficionados! That is NOT what we would do at all!

    • Hi Philip

      There is nothing wrong with a bit of healthy cynicism!!!

      It would be great if as a group we advisers could shift the debate from one of price to one of value

      Nick

  8. HI Nick at least you are stimulating discussion around an important and much angst area.
    The offer of a look at your engagement letter would be appreciated.

  9. Hi Nick- I am still waiting for authorisation but happy to submit my draft client agreement if that is ok- I have tried to look at pricing in a different way to the norm and am also working on a short video for consumers to cover the slightly more boring elements- is that ok?

  10. It sounds like a good idea, delivering a laid out time-plan that allows a client to say yes or no but at least better gauge where the likely costs will arise, rather than stating a ‘job rate’ or hourly fee rate which only we can honestly comprehend the value of. I’m sure many firms do it,but I’ll bet there are lot that do not and surely we would all benefit from such idea-sharing? For pure advice especially, it must be preferable to a generic CIDD or similar.

    • Hi Steve
      Absolutely agree. Engagement letters have a twin consumer benefit of them knowing precisely what they are going to get and what the advice delivery journey is going to look like.

      It also protects the adviser against “advice drift” the kind of thing where a client says “but I thought you were going to do X?”

      Nick

  11. Steven Pearman 6th March 2017 at 2:15 pm

    Hi Nick, thank you for your offer, it is most generous of you. I am sure you are being genuine from the responses and support you have received, but feel that you are embracing all that is wrong with our industry. I do not agree that anyone should have to justify their practices outside meeting legal and regulatory requirements.

    Once upon a time our industry was about building relationships and meeting client needs. Now its all about covering yourself because of the out of control quangos. There are so many buzz words now.

    The most used is transparency.

    Does anyones engagement letter explain to a client that X amount of the cost is for insurance because we live in a corrupt society. That the cost of regulation is X amount, it fails over and over and over again so the bill to them also covers FOS, MAS that was, FSCS. That you also need to charge them an additional amount because they are seen as the easiest targets for this massive gravy train and every year a new way of extracting money from those that dare to have any is thought of by those that are supposed to be protecting said clients?

    • I provide clients with a pie chart which breaks down the apportionment of my costs/overhead and my actual ‘net’ retained remuneration per case (adjustable by amount). It may not be favoured by the powers that be but it is factual and very relevant as you say. If anyone above me is embarrassed that the public know what share goes to them, then welcome to our world! It’s all about transparency and that can be a double edged sword!

      • Hi Steve

        I don’t think that the engagement letter is about justification of our charges to anyone other than the client so that they can make a decision about whether to say yes or no to our proposal.

        Like you I could tell the client what percentage of the cost related to regulation and things such as PI FSCS etc but I’m not convinced that would help them in their decision making. It might make them feel a bit more empathetic but will it help them determine value for money?

        For me the engagement letter is about setting out the scope of work and being totally transparent about the cost. Of course people still say no to it but I’m trying to give them a fighting chance of undrrstanding what they are getting and what they are going to pay.

        Experience of using them over many years confirms they work well for both client and adviser

        Best wishes

        Nick

      • For me it’s not about how much of my cost relates to regulation, staffing costs, my office costs or profit margins (sure I have to take those into account in working out my few levels) it’s about showing the client what they are going to get by paying for my professional services.

        Nick

        • I agree Nick, my chart helps to counter ‘cost of’ argument rather than ‘value of” and a refocus with the engagement letter would be helpful for sure!

  12. Apologies for spelling errors big fingers small iPhone keypad!!

  13. With some of the above comments you have to wonder why this industry is having such a hard time being seen as a profession!

    • Matthew

      I understand your comments. This is though a forum for debate and we may not like each other’s views but everyone is entitled to their opinion. We should attack the post not the poster

      Hey at least this isn’t New Model Adviser!

      • I think its a very laudable thing you are trying to do here Nick, its just a shame others don’t, and then feel the need to comment to that effect rather than just move on.

  14. I know of one firm that charges an OAC based on the clients value, not the value of investments. IE your investment is £100k house worth £300k. OAC of 0.5% is thus £2k… thoughts?

    • What do they provide for £2,000 does it represent good value for the client? Is it for example a full financial planning service as well as the investment management of the £100,000.

      On the face of it the calculation methodology seems a bit “odd” but is the price good value?

      The whole thrust of the engagement letter is to set out details of the work to be done and the value added as well as the price

      Nick

    • I actually like this idea as it positions your advice cost as advice and covers all the things you may discuss and recommend- rather than being product driven- I think the whole idea on advice is far too product driven- what if you recommend cash isa, national savings, writing a will, etc which is just as important. So I think it has some merit.

  15. Hi Nick, I would be interested to see your engagement letter. My e-mail address is jrm@sovereign-ifa.co.uk Many thanks

  16. Nick- sorry to see you taking a bit of stick for a really good idea- you are one of the most respected advisors in the industry and don’t doubt your motives at all- in fact a recent comment on the industry was how difficult it was for consumers to compare fees and I think that it is true- we don’t know whether we are embarrassed or proud of our pricing and value- the FCA suitability review clearly showed we were shit!! at explaining them and if the recordings I listen to are anything to go by then many advisors are generally embarrassed to talk about their fees- so à mechanism for encouraging us all to think about our value, to describe it proudly and to showcase ourselves across our peers is a fabulous idea and may hopefully change the culture of secrecy. My application is in and I am looking forward to seeing how it compares and hopefully learning from the winner- we have too many people needing help and but enough quality advisors so we need to learn to hold our head up high!!!!

  17. So have there been many entries?

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