One aspect of the FCA’s new Consumer Duty regulation requires financial advice professionals to ask themselves: “Do your products and services meet the needs of those they are sold to, and do they represent fair value?”
Asking advisers to quantify the value they provide to their clients can sometimes lead to head-scratching. They know they add huge amounts of value but, because many aspects can’t be measured in percentage or monetary terms, it can be hard to articulate, let alone evidence.
To help with this, we produced The Insiders’ Guide to the Value of Advice, a white paper you can download free here.
It’s easy to focus on the tangible, like investment performance, but there are many other elements that provide real benefits to clients and these need to be highlighted and recognised.
The paper brings together statistics from industry studies, views from over 200 advisers and three case studies. It can help you to work through the different aspects that equate to added value.
As a taster, here are two case studies that appear in the paper, highlighting the different approaches that can be taken to quantifying value.
The Investment Coach, Andrew Reeves
At The Investment Coach we articulate the value of our advice in two ways: concepts and tangible numbers. Frequently we use a combination of both, but certain clients warm to one approach or the other.
We believe the best way we can add value is by being certain about client objectives. This means arming our clients with the best questions. It’s often difficult to move from “I want to invest for growth (for an unspecified point in the future)” to something more meaningful, so we use tools like The Objective Hunter to help unlock their imagination and kick-start the conversation. We believe a new client will be for life, so we have time to work through the objectives rather than having an overwhelming initial meeting!
To prioritise, we ask clients to choose five from our checklist to gauge the strength of their opinion. However, regardless of their selection, we include many of the checklist items by default, either for regulatory reasons or because sometimes perceived value can be a slow burn.
For example, every client gets a cashflow forecast: how else do you demonstrate capacity for loss? (regulatory); and as their financial plan builds over time clients really see the value of having a financial sat-nav (slow burn).
We look to quantify Adviser Added Value [AAV] using EDVOA and other sources. We estimate this to be 3.31% (breakdown below) but we then net off our ongoing fee of 0.6% to get a AAV of 2.71%:
- Behavioural Coaching 1.5%
- Financial/Tax Planning 0.5%
- Investment Selection 0.45%
- Rebalancing 0.35%
- Asset Allocation 0.28%
- Withdrawal Strategies 0.23%
AlphaWealth, Brandon Ellse and David Garrioch
At AlphaWealth, we believe the financial advice profession has long since transcended its origin as a facilitator of financial product transactions.
Today, advisers adhere to a fiduciary standard with a focus on best practice and on advancing the profession. What constitutes value to clients can be somewhat amorphous and hence advisers often struggle to articulate their value proposition to clients.
However, great financial advice can have a wealth multiplication effect through a multitude of avenues. Industry and academic literature have shown it can add between 1.6 to 4.2% to a client’s annual returns.
The rise of ‘fee-conscious’ movements has led to clients focusing on minimising fees across the financial services value chain. While we welcome this development, a degree of confusion has entered the discourse with respect to the value of advice.
An adviser relies on a multi-dimensional array of skills and services to optimally achieve real-world outcomes for their clients after accounting for their fee. Foregoing advice to simply minimise fees is a dangerous strategy that underestimates the challenges presented by how our evolved psychology reacts to the emotive topic of money.
We echo the sentiments of best-selling author and financial adviser, Carl Richards, in believing that a great adviser is a personal guide that walks the journey of life with their clients.
The destination is the accomplishment of the client’s life goals, dreams, and legacies to their families.
The trusted guide sets out the strategy to improve a client’s probability of success and provides comfort and certainty when the path inevitably becomes treacherous.
Above all, a guide provides clients with the most valued asset of all – time. More time to spend working on their passions, projects, and vocations, and more time spent with their loved ones knowing that their guide is keeping them on track.
At PortfolioMetrix, we are firm believers in the value of advice. The content of this white paper will help you articulate the value that you deliver and get ahead of another regulation that is set to land in 2022.