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Outside View by Robert Reid

Recent press coverage of a market research survey by Autif&#39s unit trust information service may have caused some concern, particularly where an IFA is busily adapting his business to a fee basis.

Before I focus on this particular aspect of the report, the item which caught my eye was that 76 per cent of those members of the public surveyed cited past performance as a preferred indicator in the FSA&#39s proposed comparative tables. Given that it was second to clarity of literature, it looks like the FSA may produce tables which will be significantly deficient in the eyes of the investing public.

Leaving out past performance on the basis that no research exists to support its inclusion ignores the fact that it is the only indicator understood by many.

In due course, the FT will issue its new rating system. It is significant that its initial target group is the trade and not the public. This could be to allow the trade to provide feedback on the shortcomings or the points deserving highlighting when the new system is made public. But I suspect it is the complexity of the system that is the issue.

Any rating system will only be judged as successful if it helps the public to avoid downside risk and directs them to funds where the upside potential is acceptable. Most clients find a high degree of volatility disturbing and perhaps some indicator in this area may provide comfort.

When it comes to the issue of fees, one of the problems with the Autif survey was the size of the sample and the fact that many responding were those investors seeking to minimise their costs of investing. I suspect that if the same questions were posed to a similar sample that were effecting a pension plan, then they may have been more prepared to pay a reasonable fee.

Why do I suggest this alternative result? It is simple. I believe IFAs need to explain and promote to the public what we actually do. With pensions, there is enough mystique to make that promotion less necessary.

What IFAs need to do is to follow the rules for public speaking, namely, tell them what you are going to say, say it and then tell them what you have just said.

Translating this to the world of the IFA, we can see how it relates so well.

l Tell our clients what we are going to do. This is vital if we are to avoid the assumption that our major contribution is product purchase. To ensure this occurs, we have to put it in writing and the best medium for this is the engagement letter.

l Do it. We must make sure that we deliver the promised services.

l Tell our clients what we have done for them. They need to be reminded. This could be in the form of verbal communication but, again, a written communication is a better record.

Had those surveyed by Autif received this sort of service from an IFA, I suspect the hourly rate deemed acceptable would have been higher.

We need to explain to clients the impact of our advice, which is best appreciated if expressed in monetary terms. But those tasks which do not lead to a direct monetary benefit are still worth mentioning. After all, if we do not tell them, who will?

So when the FSA issues its tables, it too needs to remind the public of why they are being published. I suspect the public may still regard the tables as a work in progress as they are not providing what is wanted.

This is equally true for IFAs who will find that, in the move to fee-based advice, there has to be substance in their services for the client to appreciate the worth of the IFA and his advice.

Robert Reid is principal of Syndaxi Financial Planning


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