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Robert Reid: Cheap advisers can’t be offering value

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

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Comments

There are 10 comments at the moment, we would love to hear your opinion too.

  1. South London IFA 24th March 2017 at 11:50 am

    Absolutely agree, unfortunately the regulator is more focused on cost than outcome….

  2. “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.”

    The FCA covered this specific point in their update on 24 January, “Advising on pension transfers – our expectations”.

  3. Anyone who undertakes a piece of (deemed) high-risk advice, eg Occupational Pension Transfer, for a fee less than the excess on their PI cover is, IMHO, a fool. Discuss….

  4. Well written Robert. We have realised within our firm that you have to charge adequate fees and not offer tenners for fivers. For us it was the realisation that we are planners with investment oversight offering a professional service where we were charging as if we were product provider focussed where low amcs and large fund discounts are king. As financial planners in a new era of professionalism adding value to clients we should not be afraid to charge our clients accordingly.

  5. Pension Plowman 24th March 2017 at 5:23 pm

    Re the PI premium; insurers charge for the perceived risk; the prize will go to the adviser who convinces an insurer there is less risk with him or her. If you want to deliver a recommendation on a transfer for £500 – and your insurance premium is low, then you will do business in bulk.

    I suspect that there is a robo-adviser negotiating with the FCA in the sandpit who will convince PI insurers they have a pretty-well risk-free advisory process. That adviser may well end up cleaning up.

    Right now – the reassuringly expensive arguments – seem a bit rich!

  6. It all depends on how you define cheap. If I offer the same service that is cheaper than yours , does that make it of any less value? It might be because my overheads are a lot lower. Maybe I don’t have to charge VAT. Maybe I’m content with a little less. Maybe I am prepared to work harder and longer.

    However on the wide view it can’t be denied that if you pay peanuts you get monkeys.

  7. PS But the corollary is that just because it’s expensive doesn’t make it good.

  8. And the purpose of this statement / discussion is….?

  9. The key for any Robo is who will sign the trustees certificate
    FCA has already acted against some “clearance houses”

  10. A bit on the flip side; it does make me wonder, when we will start to see a few upheld FOS complaints from clients, based on xyz firm charged me £….. for this work but then on doing some research I found abc firm would have done the work a lot cheaper… ” i feel cheated”

    If you look at Harry’s comment will/would the arguement stand, if you have higher overheads ?

    Will FOS just look at “average charges”

    Will FOS look at qualifications ? or will they (FOS) just make judgement ?

    Back to the piece,
    There really are to many key variable’s to hold your argument, just to say cheap or cheaper = less value !

    Robert your last few lines are spot on…
    “Price should never be the sole determinant of selection. It is the combination of price and value that really matters.”

    But its the client (or FOS) who decides this……… and given our new world of an enhanced claims culture, makes for a very uncertain world.

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