View more on these topics

Role reversal

There seems to be a mismatch between some advice propositions and investment propositions

Financial advice is a much talked about service but it appears to mean different things to different people.

It seems that there are many advice models in the current marketplace. From an investment management perspective, one would intuitively feel that these differing advice propositions should be linked to differing types of investment proposition.

Advice generally falls into three categories – whole of market, from a limited number of product providers or relating to a single product provider.

From an investment perspective, one could reasonably expect whole-of-market advice to cover a complete range of asset managers, a range of risk-rated portfolios, a range of multi-manager funds, asset allocation advice and a portfolio monitoring and rebalancing service. This level of advice would demand detailed investment knowledge and a wide choice for clients.

Conversely, an adviser offering options from a single provider would seem to fit a different profile. One could expect to see choices from a single asset manager limited to fit the risk profile of the client.

The adviser would be expected to present a packaged solution and to have a lesser involvement in the broader services expected in the whole-of-market option. Requirements such as portfolio rebalancing would be built into the packaged deal and managed by the underlying investment manager.

Overall, the simpler and more basic the advice, the simpler and more basic should be the associated investment proposition. Conversely, the more complicated the advice, the more choice that should be available to the client.

Does the current market reflect these simple and fairly common-sense assumptions? My personal observation is that a number of differing advice models prevail in the market, from a simple product push through basic needs analysis and best advice models to basic and full financial planning services.

Furthermore, the range of investment awareness and competence across advisers operating within these differing propositions varies greatly. This is surprising, given that the consequences of poor advice are severe.

Most concerning is a mismatch between some advice propositions and the associated investment proposition. Let me give you two scenarios. The first is where an adviser representing a single provider recommends a pension with an open-architecture investment offering. The second is a whole-of-market adviser who recommends the pension product of a provider with in-house fund management only.

In these examples, there seems a distinct lack of alignment between the investment offering and the advice proposition.

The first adviser is offering a wide choice of investment managers and funds, which implies detailed knowledge of the managers and their funds. But this offering is single-provider which, by definition, means lack of choice. This is an interesting but important mismatch which is in contrast to the whole-of-market adviser giving no choice.

Why has this anomaly arisen in the market? It seems that it all revolves around a degree of confusion on what is expected from an adviser.

If you think an adviser’s role is to research the market, analyse fund management houses and their funds, have asset allocation skills and build portfolios, then you come up with a very different advice proposition to those that view the role of the adviser as being a relationship manager who helps the client determine their goals and objectives, set a framework of risk tolerance and then recommend company-approved propositions with built-in investment management services.

Enhanced clarity of the adviser’s role would help align the investment proposition with the advice proposition. If it is felt that a mismatch does exist and this has important consequences for the nature of advice given, then perhaps the rules of investment advice should move more towards a principle-based approach which should help to remove this anomaly.

Robert Noach is business development director for UK institutions at Schroders


Stop abuse with clear disclosure

It is mildly heartening to read that Clive Briault is, albeit in the FSA’s familiarly oblique and somewhat roundabout way, admitting that commission in itself is not evil but rather it is the abuse of the commission system that is the cause of so much of the industry’s bad reputation. Hey, well done, Clive. Cracking […]

CML to rethink league table after GMAC clash

The Council of Mortgage Lenders will work with its members to produce a more robust lender league table after coming under fire from GMAC.GMAC complained to the CML after it lost 10th place in the 2005 rankings to Bristol & West. The figures failed to take into account GMAC’s year-end of December 31, 2005 and […]

CML sees the outlook for repossessions improving

The Council of Mortgage Lenders says the outlook for arrears and repossessions is improving despite last week’s bank base rate rise.It says it may have to review its forecast of 15,000 repossessions in 2007 after observing an improving market in the past few months.The CML has reported that there were 8,140 repossessions in the first […]

Queen’s speech unveils pension reform Bill

The Queen’s Speech has unveiled Government intentions to introduce a Bill for the long term reform of pensions and legislation to improve the welfare system.This morning’s speech, setting out Government policies and its proposed legislative programme for the new parliamentary session, also included reforms to the planning system and the regulation of estate agents and […]

Bonds in 2017: Stick or twist?

Royal London Asset Management Bond Fund Managers Paola Binns and Craig Inches look at why short duration could be a key tactic for fixed income investors during 2017. Read the full article here The value of investments and the income from them is not guaranteed and may go down as well as up and investors […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm