I own a house near Glasgow from my time there as an IFA and in spite of the fact that (as a Kilmarnock season ticket holder) Scotland remains a second home for me, I choose to rent it out.
I pay a cleaning service, a fairly modest monthly sum to keep the place in order which annually equates to a not insignificant £1,872.
It sounds a lot, but my perception of value is framed by two questions: do they do a good job? (They do). And, is the cost commensurate to the market rate? (It is).
Now, stay with me: I’m not leading to a strained analogy about the value of ‘clean’ share classes (especially as a significant number are expensive without a unit rebate applied), but it did get me thinking about how people assess the value of an advised platform. How do they compare the market rate – do they compare with other advised platforms or with D2C offerings? How do they assess which will do the best job?
My guess is that those choosing not to take advice will either have a very simple set of requirements or think they can replicate the adviser’s role (which is likely to be misguided).
So how should people compare them? Take the example of a customer investing £250,000 with a platform charge of 0.3 per cent, investment charge of 0.75 per cent and advice charge of 0.5 per cent.
In monetary terms, the advice charge is £1,250 a year (suddenly that cleaner looks expensive). For that sum, the client has access to expert financial planning that ensures the other elements they are paying for (product wrapper and investments) are right for their personal circumstances, will create an optimal outcome and will allow them to achieve their life goals. That sounds like value to me.
One of the big themes for the first few months of 2014 will be the evolution of D2C platforms. The ‘R2 day’ regulation coming into force in April will require D2C platforms to explicitly disclose their costs to the customer, finally killing off the concept of a ‘free’ platform. At the time of writing, there is much speculation as to the level of explicit price the market leading D2C platforms will be charging. Whatever these prices turn out to be, it is important that customers consider the value they are obtaining and what they are potentially losing in value by not working with an adviser.
Any investor should, therefore, be careful not to view advice as an added cost, but as a service that increases the value of the other elements they are buying. Furthermore, to find the true cost of advice, they should compare the total cost of ownership of advice, platform and investment with that of going it alone. The ‘advice premium’ may not be as much as expected.
Our latest poll of adviser views revealed that 91 per cent consider the concept of ‘Total Cost of Delivery’ (TCoD) to be important when selecting a platform partner.
That is those services that can be integrated into a platform at no additional cost that in turn help an adviser reduce the cost of delivering their service to the client. In our survey, advisers identified those to be tax planning tools, portfolio review tools, risk profilers, portfolio management and access to execution only online services. Just 9 per cent of advisers didn’t access any of these via a platform to reduce their TCoD.
The key to these services is they allow the adviser to focus on the area of real value: understanding the client, their financial planning needs and ensuring they get to where they wish to be in life. If customers understand that aim, they will understand that advice offers value.
Peter Mann is vice chairman at Old Mutual Wealth
