After sitting for what seemed like hours on end, the generic advice standards steering group arrived at one significant consensus – that the right to define any service as advice rests with the consumer, not the provider.
The launch of the Money Advice Service should be welcomed by all of us if it achieves its aim of stimulating interest in all things financial. Whether this leads on to enabling people to do it themselves remains doubtful.
Some time ago, I found myself at the FSA discussing financial education. I suggested money was being wasted on trying to cover too much ground when the core issue in life was one of risk. The recent paper on risk and suitability provided evidence to back up my statement.
The only problem back then was that people were more interested in being seen to do something as opposed to actually delivering a long-term solution. Ego won over intellect, if you like.
The MAS follows on from various exercises that, if anything, prove just how difficult this type of education is in reality. We all need to guard against talking about or promoting concepts in a manner that is alien to our target audience, no matter how good it sounds to us. We are not the best judge and neither is the MAS.
Please do not tell me focus groups will help with this issue. They will not, as they do not contain the people we are trying to engage.
The MAS’s use of the word “free” to encourage users is what really riles me. It is not free, the industry is paying for it. Just how difficult would it have been to have had a strapline saying, “Funded by the distributors and providers of financial products and advice, no other taxpayers have contributed to the costs”?
To say it is free is outrageous – certainly not clear, true and not misleading, as the FSA would say. Perhaps a class complaint to the Advertising Standards Agency is needed?
Having been involved in the Personal Finance Society’s Citizens Advice project since inception, I fought long and hard to ensure all booklets referred to us as “donating our time and expertise”, to show our advice is valuable. Call the advice free and we walk.
Whatever happens to MAS, it will never be the only solution and we must work together if we are to solve the key issue of financial engagement.
I am sure we have clients who look at our charges and wonder what we did for them this year. However, simply to link activity with value for money is to ignore the fact that the fee enables access to professional advice from someone already well versed in your financial situation and goals.
We need money “to put the lights on”, to do the ongoing research and to remain current. An IFA’s costs are about more than the time on the clock. As we move towards 2012 and beyond, we will all be under pressure to define our costs and services. Some people will try to barter but that is best dealt with by asking them if they would barter with their own services or if their employer would.
They may prefer a service where they pay as they play but they will soon complain when we charge for rediscovery and reanalysis as the FSA expects us to do when there has been a break in service.
An IFA’s ongoing service, where clients pay for us to look after their assets and provide advice, is like a warranty on electrical products or the AA – you hope not to need it but it delivers peace of mind.
A conversation I am due to have with a client will take this no-use, no-pay view but given we wrote off excess time when we took the client on, I will not be for moving my charging structure as pacification. We may drop the client on to a lower level with no proactivity but that will involve ongoing cost as we do not offer the pay-and-play model.
It is interesting to watch the trends in fee charging. The default of 3 per cent plus 0.5 per cent trail has no science behind it and I am yet to hear a convincing argument as to why it was chosen.
The truth is mathematical, or should I say life company actuarial. Three per cent plus 0.5 per cent is equivalent to 6 per cent up-front, which is 5 per cent plus a Lautro 20 per cent uplift. When it comes to defending charges, we need a better reason than “we have always charged 3 per cent plus 0.5 per cent”.
As I said above, we need to heed the perspective of the consumer. I hear much talk of client-centricity but see little evidence of it in most adviser/ provider websites.
In the words of Sam Walton, the man who brought us Wal-Mart: “There is only one boss. The customer. And he can fire everybody in the company from the chairman down, simply by spending his money somewhere else.” That sums it up for me.
Robert Reid is managing director of Syndaxi Chartered Financial Planners