Before we start it’s probably worth giving you, dear reader, a quick glimpse behind the curtain to see how Illuminate articles are produced.
Things normally start with content editor Natalie Holt contacting me with an idea and asking nicely whether I fancy writing something.
In this instance this happened approximately two weeks BC (before Corona), and we agreed that the subject of adviser value for money would be an interesting one to explore.
Despite this conversation taking place around a month ago, this now feels like a different lifetime.
An awful lot of awful stuff has happened since, and everyone has had more important things to worry about than how the regulator might be treating advice firms over the coming years.
But life goes on, and business and regulation continues, so here we go….
The value for money backdrop
Over recent years the FCA has started using the phrase “value for money” (VFM) more and more often.
Their 2019/20 business plan quotes it in the context of payment systems, retirement planning, independent governance committees, asset management and even their own internal processes.
VFM is a term used in many different ways, including as a synonym for cost-effectiveness. However it’s best defined as the optimum combination of cost, quality and sustainability to meet the customer’s requirements.
The word customer is an important one to note: only the recipient of the goods/services can decide whether something is of value or not. You don’t get to tell people what they should think or feel.
Before things kicked off it was pretty clear the FCA was about to tackle the subject of value for money for advice firms.
I know of a couple of firms who were fortunate enough to have been selected to complete a fact finding/research questionnaire from the regulator in late January/early February.
These questionnaires were focused on at retirement services, and in particular the charges clients pay, both at the point of retirement but also on an ongoing basis.
The FCA has confirmed this work is currently on hold, but on the assumption they will only pick it up again when some sort of normality resumes, let's hope it starts up again soon.
Measuring the value of advice
The good news is advisers have never had a better opportunity to show the value of their services and advice.
When we ask advisers how they think they add value (and remember, only the client can decide whether advice actually is of value), we see that behavioural support and planning top the list.
The value comes from making sure your clients do the right thing.
Our adviser survey matches what consumers tell other researchers.
For example, Dimensional carry out an extensive investor survey, which correlates with what advisers tell us.
When clients are asked how they measure the value received from an adviser, the top four responses are:
- Sense of security/peace of mind (35 per cent)
- Knowledge of my personal financial situation (23 per cent)
- Progress towards my goals (20 per cent)
- Investment returns (14 per cent)
The client evidence
So, what should advisers make of all this?
Well firstly, if you haven’t contacted your clients over the last month then I’d suggest you really should be doing so.
Most advisers I’ve spoken with recently have stressed how important they feel it is to be doing this, not least since many of their clients are in the over 70s age group and facing three months of self-isolation.
A friendly face and some reassurance, even if via Zoom/Skype etc, really can go a long way.
Secondly, use this time to review the services you're offering your clients to make sure that a) they are value for money, and b) every client you're servicing is profitable.
If clients are not profitable it’s nuts at the best of times, let alone now.
A really good way to approach this is to create client segments based on client needs. And if you do that, you’ll be well on the way to being compliant with the product governance rules (PROD).
Finally, and returning to the point that the customer decides whether something is of value or not, it's worth developing a regular process to ask clients what they think.
It doesn’t need to be a full-on annual survey (though it can be). But if you are able to evidence that your clients are happy with the value they're receiving from your advice services, this is a huge step in the right direction.
Clearly it's up to you to decide how to position this.
However I’d suggest it'd be good to focus more on the things the Dimensional survey shows clients are interested in (that is, sense of security, knowledge of their personal situation) as opposed to costs and charges or investment performance.
Once normal times return, the regulator may well resume its interest in advice firm value for money.
If this is the case, the best way to prove your value for money will be to demonstrate that your clients at least understand the concept.
It will also serve you well if clients are regularly given the chance to show they are, or are not, happy with the services on offer.