Informed Choice executive director Nick Bamford’s recently announced competition for advisers to demonstrate their value is very welcome.
Some have said they see it as a threat to their intellectual property but I disagree. If nothing else, it makes us all think about how well we promote ourselves. A good quality adviser’s abilities and the impact of those abilities on someone’s affairs should not be kept a secret.
It is a simple fact that people generally do not understand pensions because they have been made so complex and impenetrable by so many changes over the years.
I recently advised some clients on occupational scheme transfers. At my firm, we make a distinct separation between the advice and the execution.
On average, we charge between £2,500 and £3,000 for the advice. Within that we can spend between £500 and £1,000 on analysis with an external expert and we go through a detailed and well-constructed pre-approval process operated by the network we are authorised under.
Now, all that takes time. What is more, not all of it can be delegated, which means the person with the higher hourly rate in our firm (that is, me) is the one whose time is expended on it. In most cases, we are probably just about covering our costs. Sometimes we do not even do that.
So when I see other advisers offering to do this type of work for the likes of £500 to £1,000, I am mystified as to why they feel their recommendation would not be viewed as biased or deficient by the FCA. Using an external firm does not solve this unless they take the liability too.
The use of contingency fees to pay for the advice on occupational transfers is not smart, unless, of course, you are going to use the contingency fee to refund the original fee back to the client.
That might be defendable but, in the case of most clients, an expensive piece of analysis needs to be done. Those firms offering bargain-basement services cannot be delivering a report that is all that comprehensive.
I recently came across an offer to a client where they were prepared to do the work for a fee around £1,000 less than ours but were not giving any investment advice. Now there is an interesting concept.
“Mr Client, I am going to advise you on whether you should move your occupational scheme from A to B but I do not want to know what your attitude to risk is.
If the critical yield is 22 per cent, I am sure you will manage to find the investment that can match that.” It is ridiculous.
“Those firms offering bargain-basement services cannot be delivering a report that is all that comprehensive.”
Going for the lowest possible cost to secure business in the hope that we will land the investment that follows is a very dangerous strategy; one that will only end up costing us all a lot of money.
Price should never be the sole determinant of selection. It is the combination of price and value that really matters.
Robert Reid is director at The Ideas Lab