Cost is rearing its head in financial advice

“You don’t ask a great restaurant how much the food costs when you walk in the door,” he said.

It is true. You do not, but you do look on its website or at the menu in the window.

Cost and value is again rearing its head in financial advice.

I have always said that giving financial advice is a bit like raising a child. You can only make the best decisions based on the information you have at that given moment in time, and it is only 20 years down the line that you can ever really judge whether those decisions got you the outcome you hoped.

Outcomes and the value of advice seems to be more pertinent than ever

And just like financial advice there are lots of debates about whether the best parenting strategy is to have a firm hand on the rudder and steer them every step of the way, or to set them on the right course and only correct the path when things start obviously going astray.

But outcomes and the value of advice seems to be more pertinent than ever, particularly in a financial advice market that is continually shifting.

Earlier this month the Personal Finance Society issued a call for evidence from members encouraging them to share examples of the value of ongoing advice.

The professional body has launched a campaign to shift what it sees as the regulator's perception that one-off advice taken at various stages in a person’s life is what is needed.

It is a worthy campaign, but I cannot help thinking that it will fail. And that is because the PFS is targeting the wrong people. It is not the regulator that needs convincing, it is the public.

There is an existential threat to the financial advice market. Changes are happening fast and they are being driven by choice, technology and cost.

On the face of it the advice market seems robust, with around 4.1mn people accessing advice a year, according to the Financial Conduct Authority’s report on the market.

But when you look at who is being served you see a gulf: with the average advised client having more than £150,000 of assets.

And there is a service problem: just 56 per cent of consumers who had advice reported being satisfied. That is a staggeringly poor performance. If it were not for the barriers in the market then the average churn rate of 5 per cent would be even higher.

Delve a little deeper and you find that many customers of financial advisers do not understand what they are paying for, which makes it enormously difficult to assess whether you are getting value for money.

And then there is the platform problem. There is a price war happening at the moment and investing for yourself has become cheaper and easier than ever before.

Consumers have also become more questioning about costs. They want to know what that typical 1.8 per cent annual fee is actually getting them.

They can have a world of investment choices on their phone, and do their own financial planning on the train home from work.

The PFS is right to champion the cause of advisers. But more constructive would be finding better ways for advisers to show the value they are giving and of the type of work they are doing, year in, year out, so clients do learn to appreciate advice more.

But they also need to recognise that the needs of customers are changing, and find a way for advisers to fit in to that.

It is about adapting for the future rather than fighting to keep the one that kept them going in the past.

Cryptos

What would you do if a client demanded to have money in bitcoin or ethereum or any other cryptocurrency?

An adviser I was speaking to the other day said he would strongly advise against it. Others said that if this was what their client wanted they would help, providing it was very limited exposure.

The rise of crypto in to the mainstream (whatever your viewpoint on it) certainly poses some modern business challenges.

And with plenty of the private wealth managers now offering exposure because their clients want it, it seems like an area where advisers really ought to have an opinion.

Greenwashing woes

Another week, another mountain of environmental, social and governance fund launches.

Another week, another load of funds found to be mis-stating their ESG credentials.

Mark my words, litigation funders are watching.

A giant mis-selling complaint could be around the corner.

James Coney is money editor of the Times and Sunday Times