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Divide and conquer: Mark Polson on financial planning issues for 2019

Divide and conquer: Mark Polson on financial planning issues for 2019

It seems only a few weeks ago that I was writing my first words of 2018 for Money Management. But while our esteemed editor has to put up with my creative treatment of deadlines, I’m not that bad.

Time, then, flies. Especially when 2018 was such a momentous year for platforms. Along with health, prosperity and happiness, I think my wish for everyone involved in platforms is for a much less exciting 2019. All that said, here are a few themes that I think will keep us busy this year.

You want how much? 

Yes, it’s that disclosure thing again. As you know, ex-post disclosure hoves into view in the early part of this year. Every adviser I speak to says clients don’t care about disclosure, they won’t read it, and so on. But I’ve seen a few of these documents, and I do think clients will read them. 

One paraplanner showed me the figures for a client he’d worked out, and on a £250,000 accumulation self-invested personal pension, the client paid total charges of just under £6,000, with £2,500 going to the adviser. 

For anyone opening their calculator app right now, that’s a total charge load of 2.4 per cent a year. It means 1 per cent goes to the company, 0.36 per cent to the platform and the ongoing charges figure of the investments is 1.03 per cent. 

So that’s ‘toppy’, but not quite at the level of some well-known advisory firms with high-quality headed notepaper. It’s at this point that someone usually parrots some nonsense around “cost is only an issue in the absence of value”, which ignores the fact that value is a function of cost and…oh, I give up! 

Anyway, the key point is that the client’s fund lost more than 5 per cent last year. The paraplanner summed up the disclosure statement as saying “Well Mr Client, I took £2,500 to lose you £12,500 this year.”

I’ve heard for a long time that individuals who have enjoyed the experience of financial planning don’t worry if markets are heading south, and are happy to pay fees irrespective of what’s going on in their portfolio. The fact the first round of disclosure statements will be hitting at a point where one-year returns are negative for many clients – maybe for the first time in nearly a decade – will be an excellent test of this premise.

Render unto Caesar…

My second theme for the year is the separation of portfolio management from financial planning. The sparkier reader will note that this isn’t unrelated to the first theme.

In our most recent adviser research (we surveyed 235 companies in October/November 2018), we found about 50 per cent of our respondents run their own advisory models. For those who do so, about 70 per cent of their new business is placed into these models. 

Only around a 10th of firms we talked to have discretionary permissions – this is roughly in line with the wider market: 8 per cent of directly authorised companies have discretionary permissions, but if we included appointed representatives of discretionary fund managers that number would move upwards a fair bit.