A fellow IFA recently complained that he had lost two clients to a cheaper adviser, despite delivering those clients excellent investment returns over the last few years.
The main point he was making was, that whilst cost was known and future returns unknown, low cost did not necessarily mean higher returns and that is a point which I would fully agree with.
The IFA claimed his performance figures were much better than most other advisers and he felt that clients should pay his higher fees for his better returns. Unfortunately the key problem is that, as was acknowledged by the IFA, future returns cannot be guaranteed and the FCA would be quick to remind us that past performance is no indication of future performance.
A quick look at that IFA’s website gives you an idea why he might have lost those two clients, as the message is all about investments, pensions, reducing tax and improving the performance of your fund. There is little or no mention of you as the client or your goals or objectives, its all about your money.
The problem is that, without genuine financial planning, the investment or pension you have, or little tax saving you get, might make no real difference at all to the client. That’s not to say that these are not important, or that they do not make a difference, it’s just that they don’t make the ‘real’ difference and are not what clients really care about.
We have all read stories of the old man or lady who lived in a run down home, got their clothes from the charity shop, lived on supermarket reduction food, only to die leaving millions in the bank. Did that old man or lady need to pay a little less tax or achieve better returns? No, they needed a financial planner to tell them that they can afford to spend their wealth or at least gift it away during their lifetime.
Equally there are millions of people spending far too much, investing far too cautiously (if at all) and not protecting their families. If those people die early their families will face a bleak future and if they get to retirement they are going to be in for a shock.
Financial planning, as opposed to simply financial advice, can really change the outcomes for clients by focusing them on their need to change their inputs and their actions. Whilst future performance cannot be guaranteed, the effects of personal action can be. If you save or invest more you will get back more.
It is by embracing genuine financial planning that we as advisers and planners can add real, and quantifiable, value to our clients and that value cannot easily be undercut by other advisers or by non-advisers such as the discount brokers. It’s this value that ultimately clients will be prepared to pay for.
For the record, I do not think the lower cost IFA got it right by gaining those two clients solely on the basis of price as they may have the same problems holding onto them if performance suffers or an even cheaper adviser comes along.
Scott Gallacher is director at Rowley Turton