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Tale of two meetings

Clients see the value of an adviser in a business relationship.

In the first instance, you have completed a formal fact-finding meeting with Mr John Smith, discussing expectations, understanding his financial issues and looking at his needs and wants. The closing comments could be something like, “John, we’ll put a report together. Can we arrange a meeting in a week or two to finalise things?” The meeting takes place, you present your report and transact any business. Does that demonstrate or explain the value of advice? I think it sells it short.

Second scenario. “John, can I outline what we are going to do with the information you provided today in advance of our next discussion?

“First, investment matters. The conversation we had around your capital and what you wanted us to do for you, here’s how we will be exploring that area for you.

“George, our investment specialist will look at my notes outlining your expected rate of return, set out the way we manage risk for you and the access to income and pull together the portfolio we would build as a long-term solution. This involves looking across the asset classes – cash, fixed interest, property and shares and creating a “personal blend” that is designed to produce a cash/inflation plus return just as we discussed. He’ll then look into each asset class and consider the correct fund selection so that we achieve the correct balance of risk and return at fund level. Having built the portfolio content, George will pass this to Lewis, who is our tax and trust specialist.

“Lewis will look at the notes we compiled around you and your family’s tax position, consider possible future tax profiles and look at how we can maximise the taxation benefits which exist across tax wrappers or products in the market. This lump sum may be wrapped in an onshore, offshore bond, a collective or unit trust, Isa or even used within a pension structure. The investment structure should be considered in isolation of the wrapper as they answer different questions. Once he has established the most suitable wrapper or product, he will look at the possible use of a trust, which again will depend on your and your family’s tax profile and requirements. We then pass all this to Geoffrey.

“Geoffrey is charged with governance, a process which ensures that our conduct on your behalf in terms of the advice we offer is consistent and in keeping with our discussion today and that we can continue to work with you to manage the outcomes you expect.”.

The difference is simply that the second scenario outlines the depth of involvement, time, resource and experience brought to bear in creating a sustainable, suitable solution for the client’s future investment needs. It creates a more accurate picture of what advisers do for their clients.

Advisers do all the above in some shape or form but seem ungainly in terms of explain-ing this to their clients. The result for many clients is a transactional relationship with no real frame of reference in terms of what “added value” looks like.

As we move to factory-gate pricing, transparency will dictate that advisers add their fees or their costs to the manufacturer’s wrapper. The implications are significant. If clients see the relationship merely as a transaction, they focus on price. If they see it as a business relationship based on advice and support, they can appreciate the value added by the adviser.

Advisers have already got some signals from the FSA’s distribution review which point to the separation of product from advice. Unless customers understand what advisers really do for them, they will always confuse value with price.

Frank Morton is investments development manager at Prudential.

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