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Winter of discontent

Dwindling client confidence brings the issue of trust to the fore again

There is a clamour growing with the onset of winter and it does not come from migrating Canada geese or from lobby groups protesting at the extra hour of darkness in the evenings. It does not even come from IFAs, fund managers or regulators as they debate the long-term implications of the retail distribution review. It is coming from clients.

I cannot remember more nervousness exhibited by clients who are almost willing there to be a slump in house prices and a crash in equities or bonds. They are living fearfully in the growing shadow of the sub-prime crisis as it darkens the landscape of banking.

Something fundamental has altered in consumers. It is that intangible but universal accelerant which allows all things to ignite – confidence.

Queues outside Northern Rock have carved a warning sign deep in the national psyche. Much of financial services is built on an almost unspoken trust between providers and consumers, and IFAs must tread carefully to preserve that trust.

I would argue that clients who are not put off seeking assistance will not take much comfort from the much heralded brave new IFA world – the land of the fee.

It is a funny thing, this advice business. I recently came across an article on investment written about two years ago. Three high-profile fee-based advisers (who shall enjoy anonymity) were telling investors to back Japan, in particular the Legg Mason Japan equity fund, which they each claimed was best placed for a strong recovery. One of the advisers said it was time to take profits on Invesco Hong Kong and China.

You may at this point, if you so wish, refer to the performance tables. Yes, it is true there is something approaching a 150 per cent fund movement in that advice. One fund fell by 50 per cent while the other doubled. Unfortunately, they were the wrong way round.

The fact is that whatever the nay-sayers who consistently poison this industry would have you believe, there are no guarantees for clients any more.

Fees do not mean sound advice, they just mean self-opinionated advisers who like the sound of their own advice. Commission introduces incentives where perhaps it might be better that there weren’t any. Oh yes, and the banks are anything but safe as well.

As we IFAs rearrange the deckchairs, we drift silently towards the iceberg, almost blind in our complacency.

Salespeople are almost always seen as a problem. Why? Sales are what success is built on in every industry.

The industry is in danger of being hijacked by pompous pseudo-professionals frowning on the idea that people need to be sold to and saying that what everyone needs is big initial fees, long reports, disclaimers, confusing products and complicated charts, all accessed from their laptop.

Such a diatribe of negativity deserves to end with some attempt at a solution.

Here, I speak from the heart. Our duty has always been to educate and motivate clients to have a limited exposure to financial markets in their own interests. That is all. Our primary skill is one of relationship. Our secondary skill is one of judgement. Our tertiary skill is one of support. All these are underpinned by honesty and trust.

We are financial planners. We have a duty to talk sense to clients and maybe that involves taking more exams but it is so much more than just qualifications. We have a duty to treat our clients fairly and maybe that involves fees and not commission but it is so much more than remuneration.

We have a duty to be there, year after year, to help our clients achieve what they want for themselves and maybe that involves all the systemic paraphernalia that goes with this great profession but it will always be so very much more than that.

Was that another clamour I could hear? A winter chorus of agreement or dissent perhaps? Oh sorry, it was just the Canada geese.

Steve Buttercase is senior adviser at M2 Financial


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