Will customers shy away from fee-based advice?
Advisers have undervalued the services they offer by pretending advice comes at no cost.
Throughout the winter my son has gone to football training every Tuesday and Thursday evening. He and around 15 to 20 friends have played on a floodlit pitch that they hire for around £30 an hour.
When the clocks moved forward in the spring, the lighter evenings meant they no longer needed to hire a pitch and could play for free at a local recreation ground.
This week just four turned up. This has been the pattern every since the free pitch was available.
You can see where I’m going with this, I’m sure. Because they no longer have pay, they no longer value the experience.
After a day at work the sofa looks more comfortable than the football pitch.
And so to the comments of Chris Horlick, managing director of care annuities provider Partnership. He told Financial Adviser that the belief that people will shy away from paying fees as a result of the retail distribution review is a red herring.
In particular care advice can be extremely valuable and people “will gladly pay significant amounts of money for that”.
It is important not to take Mr Horlick’s words out of context. He is talking about his own business and his own area of expertise. And care fees is an area where clients tend to have a significant lump-sum to invest.
But it was disappointing to see negative comments quickly emerging on the internet to his views.
It is generally recognised that consumers are often happy to pay for what they see is a premium service. But at the same time they do expect to receive value for money.
I have long contended that IFAs have tended to undervalue the service they provide by in some way pretending it comes at no cost or at least can be delivered without any financial pain.
This is clearly nonsense. Businesses need to make money. Overheads must be met and staff paid.
Yet people working in the frontline of the financial industry have presented clients with a facade that pretends this is not so.
I can understand the fear that business models are being forced to change.
Clients who know how much they are paying and what they are paying for will be more demanding. They will want to know they are getting value and will expect you to justify every penny you charge.
Clients who know how much they are paying and what they are paying for will be more demanding
But surely such clients will be more engaged with the process – and eventually – the bond between the best of you and your clients will become that much stronger.
As fund managers announce RDR-friendly share classes we can see more benefits of the advice shake-up starting to filter through to consumers.
However, I am not happy about the announcement from M&G. The fund manager is proposing an institutional share class with an 0.75 per cent annual management charge and retail class with a 1 per cent AMC which includes a bundled 0.25 per cent payment for platforms.