InvestmentsMar 20 2019

Medium is as crucial as message

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Medium is as crucial as message

A perfect storm has descended on advice companies at the start of 2019: the Mifid II requirement to assess ongoing suitability at least once in every 12 months and the need to disclose charges in pounds direct to the client – both right at the time when many client portfolio values have fallen. 

For many businesses this pain is more acute than others. For companies who have focused their proposition on risk-based financial planning, it is clear where their value lies: helping the client articulate and achieve their objectives at a level of risk that is right for them.

For companies focusing on the financial product as an end in itself, the current conflation of circumstances is more difficult. If there is no plan then the annual report is essentially a valuation statement, and perhaps some generic market and fund commentary.

Mifid II could prove more of a catalyst to change in our industry than the Retail Distribution Review ever has

But the client can get these from their platforms or providers – so what role is the adviser playing and why would the client pay hundreds and probably thousands of pounds more a year?

Client services must change

While the industry has successfully moved from commission to fees over the past five years, many businesses may not have moved their proposition as far as they need to from providing financial products to providing financial planning.

Mifid II could prove more of a catalyst to change in our industry than the Retail Distribution Review ever has.

At the time of writing, the UK and a number of global markets were down or flat year-on-year, while disclosure requirements can make it look as though charges have gone up.

Add to that mandatory charge disclosures direct to the client from platforms and, if relevant, 10 per cent loss notices, and the potential for questions to be raised in the client’s mind around the value they are getting from their financial adviser is substantial.

RDR required a change to the way that companies charge and most are now in a good place: profitable with good levels of recurring income. What Mifid II does, however, is introduce a need to change the services delivered to the client. Central to this change is the requirement to ensure ongoing suitability.

Ensuring investment suitability on at least an annual basis where the client has multiple investments – and potentially, multiple platforms or products using traditional processes – is time-consuming, costly and risky.

Just ask the paraplanners and administrators who have to put review packs together. They take a long time – in some businesses, days, not hours – and are fraught with the possibility of error. At a personal level, this preparation work can be deeply unfulfilling and stressful.

Holding on to staff, let alone recruiting them, in this environment is a challenge for practice principals worthy of another article. The economics of all this work are hard to ignore though. Lots of manual review preparation eats into recurring revenue margin.

Among all these challenges though are huge opportunities which, when grasped, are likely to shape the future of the industry.

After all, who is better placed than the adviser and the advice company, to ensure that the client’s products and portfolios are not only suitable, but are keeping them on track to achieve their agreed financial plan and objectives?

Trust in the printed product

Almost all advice companies now have a process for ensuring investment suitability – using that process to ensure the adviser and business are central to the client relationship on an ongoing basis is an opportunity of strategic proportions.

But how? How do you achieve this in a way that is cost-effective and reduces risk? How do companies demonstrate their value and ensure the client continues to see them as central to planning their long-term finances?

If you look outside our industry answers begin to appear. Elsewhere, in an era in which trust is at a premium and concerns over fake news are rife, other industries are turning back to print.

Magazines like Prospect – a high-end political, economic and current affairs title – have grown over the past few years.

The Economist continues robustly in the UK and has a circulation of more than 800,000 worldwide (1.6m if you include digital subscribers). Saga magazine, targeted at a demographic advisers will be familiar with (well-off, over-50s) has a circulation of almost 250,000.

High net worth individuals are well served with glossies like the FT Weekend, while National Trust Magazine with a circulation of almost 2.5m per issue is the most widely read in the country.

Its glossy format and focus on admittedly more pleasurable pursuits than pensions; like interiors, gardens, landscape, alongside pieces on the environment continues to appeal, even in a digital age.

Interestingly, the American Association of Retired Persons claims to produce the highest circulation magazine in the world, with 47m readers; it is the US equivalent of Saga, targeting the active and affluent over-50s. It is a combination of lifestyle as well as financial content.

It is not just traditional brands that are doing this; Airbnb has a magazine now, Net-a-Porter and Asos the online fashion retailers have magazines, even Facebook has turned to print with ‘Grow’, its content for small businesses.

In times of uncertainty people are turning to the solidity and trust inherent in print alongside digital as a means of educating themselves.

Of course achieving this is difficult in an industry that is so heavily regulated and where advice so personal. But arguably it is also more important. When demonstrating the value you bring, the ‘medium’ is important as well as the ‘message’.

Helping clients understand the value you have brought as part of an annual review might cover whether:

• They are on track to meet their agreed plan objectives.

• The risk of their portfolio and arrangements are still suitable.

• Investments have delivered value for the risk taken.

• They are not paying any unnecessary tax on the portfolio.

• Products remain suitable for their needs.

• Fees and charges are correct.

• There are no unregulated investments.

• They have followed previous advice.

• Any changes are required to the portfolio.

Covering this kind of ground as part of a well-presented plan in which consideration has been given to design as well as content, is so much more powerful and accessible than a sheaf of paper statements centred on product performance.

For most clients, if you have accurately agreed their risk profile they will still be on track so long as their investments have remained consistently of the right risk profile too.

Key points

  • Some firms are feeling the pressure under Mifid II requirements
  • It could provide more of a catalyst for change than RDR
  • The medium used to contact clients can prove as important as the message

The resulting review, therefore, even if investment performance has not been strong, can be positive: “You’re OK, you’re still on plan.”

Helping reassure clients to stay the course in good markets and bad is clearly an important part of the value that good advisers add – a coach to hold them accountable and help prevent bad decisions.

While it is not easy to quantify, it is hugely valuable to clients, particularly if the medium is as well thought through as the message.  

Ben Goss is chief executive of Dynamic Planner