It is no secret that clients are often baffled by the arcane details of financial services, and have only a rudimentary grasp of what an independent financial adviser actually does.
There is, of course, nothing wrong with this - our industry is based on the idea of a client placing their money and trust into the hands of a skilled adviser.
Most would, correctly, associate trust with expert financial advice, but the term does refer to more.
A client entrusts an adviser to work on their behalf to secure the best value in their investments wherever possible.
Essentially, and this is far from controversial, at the moment money changes hands an adviser should be working in the client’s best interest to maximise the return on their investment.
Allow me to draw the comparison with the way UK taxpayer money is spent through government procurement.
It is a requirement for all goods and services to be cost-effective and be subjected to effective competition. This was brought in to stop the perception that government suppliers can overcharge while ministers turn a blind eye because of the old boys’ network.
Today, any company that wants that lucrative government contract is obliged to price its goods or services appropriately.
There was a problem, rules were changed, the problem is now solved.
However, here in the world of financial services, we still have a potential problem.
Clients don’t dictate which platform or investment manager an adviser should use, instead the financial adviser decides and then bills the client for their services.
The issue is they don’t all charge the same; in fact, pricing can vary by more than 600 per cent.
The figures speak for themselves. Let’s study a £100,000 lump sum investment over a 10-year period, with the assumption of an annualised 5 per cent return.
Without any fees at all, the investment is worth £162,289 after 10 years.
If we then take a highly competitive platform, which also provides investment management services as part of its price - at say 25 basis points (bps) per year - the figure drops by £4,027 to £158,863.
At the top end of the market, you’re looking at a discretionary fund manager charging 1.6 per cent and a platform charging 0.4 per cent - a combined total of 2 per cent (or 200bps).
This has a dramatic effect on a client’s investment, which is now worth just £133,093 after 10 years due to fees of £29,797.
That is a difference of more than £25,000 (or 639 per cent) - surely difficult to justify.
For clarity, this does not include an adviser's own fees, which a client will be more acutely aware of, and have the ability to switch to a different adviser if those fees are considered uncompetitive.
Understandably, in the post RDR-era and the age of Mifid II, additional top down regulation is not what the industry craves.