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Robert Reid: Clients are a risky business

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After the festive break it can require real effort to get back into work mode. I say that with no touch of irony as this column was started in 2013 and was not finished until 2014. 

This time last year we had just seen the first few days of the post-RDR world. Along with some others I predicted a significant number of advisers leaving the sector. I remain convinced that I am not wrong but my timing was and the period of change continues.

Consolidation continues apace but if you do not remove costs and bring in a robust management structure then you have not achieved anything of note. Adding all the fixed costs together does not keep the same profit level. If anything, it reduces it or removes it all together.

For far too long inefficiency has been masked by commission paid at a level that provided income for advisers at too high a rate and now we find ourselves at the peak of post-RDR commission levels.

In other words, they are only going to go one way and that is down unless we cut the umbilical cord and charge for our time and the risk we take on in giving advice.

We need to revisit propositions that are not sufficiently robust and bring them into the real world.

Few advisers have a level of investment skill that allows them to predict which managers will deliver alpha on a regular basis and at a range of risk profiles.

We need to sell either planning or investment advice: using one to pay the other is not smart and prevents real value being highlighted.

Last week, Money Marketing hosted a video interview with Succession Group chief executive Simon Chamberlain and the key point for me was his statement that “one of the weaknesses the IFA sector has always had is that they will do business with anyone that will do business with them”.  Or, as one presenter used to put it, “as long as they can leave their breath on a mirror” they were acceptable as a client.

Last year we witnessed an increased focus on risk assessment for clients, which is full of merit, but all too often advisers ignore the greater risk of accepting someone as a client. The idea that everyone you make contact with is a suitable client is nuts. This is the very thing that drove the FSA to suggest that a single platform was not in keeping with being independent, where there was no commonality in the clients taken on. In other words, if you accept just anyone you cannot operate any economies in your advice process.

I mentioned earlier “the risk we take on in giving advice”: to be frank, the ongoing wailing regarding the advice gap is starting to get on my nerves.

No advice firm can afford to subsidise advice. When we set up the Sofa Citizens Advice Bureau projects, what took the time was ensuring that the CAB took the risk and the advisers who were donating their time stuck religiously to generic advice.

I would happily do more pro bono work but what I will not do is do something for nothing while assuming the financial risk from the advice being put into action. 

If the cost and risks of regulation put advice beyond some people, that is not my problem.

The new year saw a service launched that was described as advice for low-value (ironically, this is a particularly emotionally ignorant label) clients. This needs to avoid service creep if the service, and ultimately the sector, is to avoid the risk such clients undoubtedly bring. My prediction for 2014 is more change and less notice.

Robert Reid is managing director of Syndaxi Chartered Financial Planners

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

  1. People keep talking about an advice gap. However, there is no advice gap. The reality is that there are some potential customers who place no value on the service offered by financial advisers and are unwilling to pay a fee for advice. The emphasis should be on the word unwilling. People seem to confuse the word unwilling with unable. Most of these people are able to pay a fee but do not want to. The reasons are varied. It could be that these people are simply mean and do not like paying for anything if they do not have to. Alternatively it could simply be that they do not value the services offered by financial advisers.

    In conclusion, life is too short to worry about those who do not wish to pay. Financial advisers need to focus on those people who take an interest in their own finances and are looking for an adviser to help them achieve their financial goals.

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