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Quilter tool shows where unadvised investors go wrong

A scientific formula can tangibly quantify the benefits of taking advice over investing without help, Quilter says.

The financial advice company has designed formula Adviser Delta which aims to quantify the value of advice by breaking down the benefits outside of investment return.

Intrinsic chief executive Andy Thompson says the tool will allow advisers to quantify their value on an annual basis by tracking various ways advised clients benefit over non-advised investors.

The decision for calculations to be annual arose from the intent to present findings on a yearly basis in the same way advisers must annually prove their compliance with Mifid II regulations.

Quilter applied Adviser Delta to an example client, a married man of 42 with two children and an estimated 22 years until retirement. In addition, the example client was a higher rate tax payer while his partner was a lower rate tax payer.

The overall differential value of advice calculated for the client was 4.04 per cent per annum when calculating the value of five enhancements advice could have made to his portfolio.

Intrinsic chief: Advisers must become their own champions in 2019

Thompson says: “Customers naturally want to understand what they are getting for their money. That’s a question the financial advice industry has struggled to answer because much of what we offer is intangible.

“Adviser Delta gives advisers the framework to put a figure on the difference they are providing and this is crucially about more than just the investment performance and goes back to the basics of what advice offers.”

The Adviser Delta is broken down into three segments – a look at how an investment is held, the enhancements possible for investment solutions, and cognitive benefits of advice including avoiding inherent behavioural tendencies that could lead to exiting the market at the wrong time.

Intrinsic head of business consultancy Paul Young says there has so far been an inherent acceptance that value of advice is too subjective to be defined.

Where will the Quilter-Lighthouse tie-up take its advisers?

He says: “Research in this area has been piecemeal so we needed to really track advised clients against an alternative to look for something tangible that’s really about advisers learning to understand their own value in a way that can be explained.

“Advisers spend a lot of time talking about investment strategies and returns but people can do all those things easily themselves these days; the market is open to anyone so the Delta is about discerning the other benefits of advice that are not highlighted in the same way.”

Quilter investment director Rick Eling adds: “No system can ever be a replacement for the emotional burden and effort involved in investing. Anyone can buy a product but advisers help you to do it in the right way.

“By comparison, unadvised clients are taking on a lot of risk with little understanding of the risk they’re taking and little reward for it too.”

Research when building Adviser Delta found unadvised investors stuck mostly to UK-based companies perceived as safe while investing.

Quilter Cheviot poaches from Brooks Macdonald and Charles Stanley for investment management team

In addition, unadvised client portfolios tend to be characterised by lack of diversification, a preference toward shares, little attendance to rebalancing, over trading, and panic selling.

Thompson says the ongoing threat of Brexit that has kept markets uncertain is adding to pressure on advisers to demonstrate their worth.

He says: “The rosy world we were previously living is no longer and there’s a storm over confusion around Brexit that’s really got people thinking about their money and their plans for it.

“One of the mysteries of our industry is that when we are talked about broadly, we are not trusted, yet when you ask people who are engaged in advice, they tend to have a strong relationship with their adviser and a lot of trust attached to that, especially since RDR.

“Mifid was a great step in terms of bringing transparency to disclosure but that needs to go one step further with more education and more engagement so advisers can really show what they bring to the equation.”

Adviser Delta is not limited to advisers within Quilter’s network Intrinsic and will be available to the whole market.

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There is one comment at the moment, we would love to hear your opinion too.

  1. Julian Stevens 5th June 2019 at 6:46 pm

    All good stuff, I’m sure, but is it likely to persuade many DIY investors of the benefits of paying for advice?

    Most, if not all of the DIY portfolios I’ve examined over the years have shown the same characteristics. About a third of them are in good funds, a third are in okay funds and a third are in dog funds. What DIY investors need to be convinced of is that the extra returns potentially achievable from a professionally managed portfolio will outweigh the additional costs. That’s very difficult to quantify because, to a large extent, it’s speculative. Pay me money and the extra performance I can add will more than cover than my costs. Most punters, I suspect, would demand proof of how many other portfolios have shown such results, and that’s difficult to provide, at least on a convincing like for like basis.

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