About a year ago, I purchased a suit because it was in the sale. Other than being cheap, it wasn’t exactly what I was looking for. The trouser waist was a size up and jacket shoulders too wide. I looked like a 14 year-old wearing his father’s suit. But it was cheap and, to me – at the time – that represented value. It would have no doubt represented value to someone else three weeks later, when it was hanging in a charity shop.
Boring Money’s spring census report, published yesterday, revealed that only 8 per cent of adults are prepared to pay more than £100 per hour for advice. Many would see this as more than sufficient to make a living, but with regulatory and administration costs – plus the fact advisers cannot be charging fees every hour of the working day – it means it is not as profitable as some may assume.
However, the issue lies not in what people are prepared to pay, but why? Among all the furore concerning how to fill the dreaded advice gap, has been the notion of “value”. Before the RDR was introduced, charges were certainly more opaque and yet, it seems more people were willing to take advice. Understandably, cost dominates many of the decisions we make in life, but often the important ones are based on value. People, generally will not compromise value on houses, cars and children’s education, but fall down when it comes to financial planning. It is important to remember that the advice gap does not necessarily indicate some people cannot afford advice, more that they are choosing not to afford it.
Perhaps the issue is how the public perceive the value of advice compared to other professions. Highlighting the biggest flaw with the RDR, which has been segmenting advice as a luxury rather than a necessity. In truth, some aspects of advice are a luxury, but a life of luxury – especially in retirement – is highly sought after.
Further data showed 40 per cent of adults like the idea of robo-advice, but surely this only carries relevance if they were also asked how much they are willing to pay for it? I suspect many are attracted to digital advice because they think it will be cheaper, or in some cases, free.
In any case, why would consumers favour digital advice over face-to-face? For a few years now, anyone has been able to purchase or sell homes online, thus cutting out estate agent fees (generally at 2 to 3 per cent of the property value). But this market is yet to take off. Why? Is an estate agent selling a second home worth fees of £6,000, but the chartered financial planner who invests the proceeds in a complicated range of assets only valued at £500? Of course not, but also consumers cannot be blamed for failing to distinguish value between the two. I am sure if those surveyed were asked how much estate agents are worth, the results would be more damning, but it will not discourage them paying high fees for their services.
The RDR has unquestionably driven increased professionalism, with more and more advisers gaining chartered status. And yet, the Financial Advice Market Review (Famr) seems more focused on finding low-cost solutions instead of promoting adviser value. It is time for the regulator to shine a spotlight on this value, instead of trying to market these cheaper alternatives.