We have become accustomed, of late, to seeing ubiquitous ‘messages’ from PPI claim helplines.
But, as the Financial Conduct Authority’s animatronic Arnold Schwarzenegger reminds us, the deadline for PPI compensation claims is now in sight.
We believe that investment advisers will be the next focus for this growing army of ‘no win no fee’ claims services and that financial advisers need to focus on putting investment outcomes at the centre of their advice process to reduce the risk of spurious claims of mis-advice years from now.
The number of claims management companies has exploded over the last few years, to the point where there is even a comparison site offering to help consumers choose the best one.
As a result, the end of PPI claims isn’t going to send the claims management industry into an unrecoverable decline.
Given the level of competition in that market, it is unsurprising they appear to have already begun to turn their attention to our profession – “have you been mis-sold an investment bond/pension/Isa, or anything else for that matter”?
Doesn’t it make more sense not only to clearly set expectations of returns with clients at the outset, but to then use solutions which specifically target those returns? These firms point out the importance of considering the risks associated with investing, in a way which suggests advisers ignore this, and seemingly imply that SIPPs (self-invested personal pensions) and property funds are generally unsuitable.
They talk so universally that almost anyone could consider themselves as having been mis-advised.
While adviser suitability reporting has moved on immeasurably over recent years, and our ability to defend ourselves from scurrilous claims is much improved, the fact is that dealing with claims and complaints is incredibly time consuming, and any form of prevention has to be better than having to fight your corner.
A reasonably wealthy and intelligent friend of mine recently asked me how he thought his financial adviser was doing for him – “he gets me about 9 per cent interest a year” was his statement.
While I explained that it wasn’t interest, and rather that it was the total return of the investment portfolio that had been constructed for him, it was clear that he didn’t understand what he had, and more importantly that he expected that these sorts of returns were a reasonable yardstick for what to expect in perpetuity in the future.
Now I expect the IFA had explained to my friend everything he was arranging for him, and I’m equally sure that he has reviewed his circumstances over time, but our jargon rich lexicon does nothing to help to manage clients’ expectations.
I’m sure his investments have an appropriate benchmark as a means to understand the appropriateness of risk and return, and I’m sure that the IFA does everything possible to ensure that his portfolio performs in excess of those benchmarks.
But the fact remains it is unlikely that his expectations will be met into the future by a fund or portfolio targeting a meaningless stockmarket index which bears no relation to his personal experience of investing.
Imagine then, after a couple of years of not getting his 9 per cent return, how tempted he might be by an advertisement in his local newspaper asking whether his investment returns were what he expected.
Doesn’t it make more sense not only to clearly set expectations of returns with clients at the outset, but to then use solutions which specifically target those returns?
Clearly there are no guarantees with outcome-based solutions, and they can still achieve returns which miss their targets, but in this increasingly litigious world there has to be merit in using investment solutions which are at least designed to meet clients’ expectations, rather than risking beating completely irrelevant benchmarks and still falling short of the mark.
Andy Davies is head of UK retail sales at Momentum Global Investment Management
