As we move towards the full implementation of adviser-charging, we are seeing more reports, analyses and scenario planning looking at how adviser-charging could affect the number of advisers who will be able to offer (and make an acceptable living out of) financial advice and, as a result, the number of consumers who will be able to access financial advice
The basis of the concern is the need, under adviser-charging, for advisers to state the cost of advice explicitly. The understandable concern is that, faced with this stark statement of the cost of advice, there will be many clients who will decide not to pay it. This decision would, in effect, be a statement that the client does not attribute sufficient value to what will be delivered to pay the amount required.
The more we think about it the more we conclude that, at the most basic and fundamental levels, the two following factors will be key determinants of how many consumers will be prepared to pay for advice and, as a result, how many advisers will be able to make an acceptable living from providing it.
The first of these determin-ants will be the ability of adv- isers to provide consistently delivered, received and “felt” service that has a value to and positive impact on the financial wellbeing of the consumer receiving the service that the consumer believes to be worth the cost. In other words, the cost of the financial advice/ service given needs to be justified by the actual and perceived benefit to the consumer.
Was it ever any different for any discretionary (non-compulsory) purchase of tangible goods or intangible services?
Think about it. One way or another, whenever you buy anything you are not forced to, you are making an unconscious or conscious decision that what you will get (or avoid) will be worth what you will pay. Obviously, the intensity of the decision- making increases with the amount that you are being asked to pay. The two key levers in the decision- making process are:
- the importance to you of the benefit you will receive by paying the price
- the amount of the price
Generally, the higher the price the greater the proven benefit needs to be and the lower the perceived benefit the lower the acceptable price will be.
The second determinant in relation to willingness to pay for financial advice may be whether the actual payment – the passing over of money – takes place by:
- an identifiable transaction separated from any deduction from a financial product, cash account or similar
- by deduction from a financial product, cash account or similar.
We believe there is a strong case for supporting the conclusion that even when the cost of advice is clearly and explicitly articulated, in writing or verbally, if the payment does not have to be made from the investor’s own funds (that is, can be taken from their invest-ments), this will make the payment of the fee more acceptable for most (but not all) people.
That does not mean the cost of advice does not have to be justified when the payment is taken from a financial product or, say, the cash account on a platform.
It is just that if it is justified (on the grounds of the value and utility of the service) the payment of the fee through other than a direct, separate payment by the investor, will make it more likely to be agreed to.
How does an adviser ensure their service is valued? Well, it is not rocket science.
Proving benefit ideally needs to be done regularly and in relation to issues that are perceived as important. For example, if a retainer is proposed, then it may be enough to just be there when needed in relation to a really important issue.
The analogy here may be the RAC subscription that is paid and largely not used but, when needed (at 2am in a country lane), it delivers.
Remembering this may well create the longer-term loyalty based on a fear of what it would have been like without the service.
As well as delivering when needed (and providing callout security), advisers can also put their proactivity muscles to work to maintain regular visibility. The Royal Mail’s “I saw this and thought of you” campaign some years back may merit some imitation. Tax change is an obvious source of material to say to specific clients: “I saw this and thought of you…” I saw this change to income tax and thought of you…because by restructuring the way in which you hold your investments or what you invest in, we could possibly reduce its impact.
Regular, relevant targeted communication in the way that the client values it can represent the glue that all good business relationships are based on and a key part of the delivery of value which justifies an adviser charge.
Access full CPD, technical updates and business generation ideas through Techlink Professional. Go to www.techlink.co.uk