Value of advice mapped

The wealth management company hopes Adviser Delta will quantify the difference advice makes to clients on an annual basis, when compared with non-advised consumers.

Adviser Delta will be available to the whole adviser market, not just those within Quilter, and strives to help advisers demonstrate the value of their relationship with the client on a broader spectrum than solely the impact of their advice on investment returns. 

The formula quantifies the value of an adviser ensuring a client's assets are placed in the correct name, with the right beneficiary and most efficient tax shelter, something Quilter's research found was challenging for non-advised clients to get right. 

Quilter has also focused on the value created by advisers managing clients' inherent behavioural tendencies, such as to panic sell when markets drop, and ensuring clients "do the right things, at the right time, to realise their financial goals". 

The tool has been launched in the midst of what Quilter described as a potential "perfect storm" for the advice market with confusion surrounding the details of the UK's departure from the European Union and the relatively new requirements under Mifid II for adviser to disclose costs and charges associated with a client's investments. 

Andy Thompson, chief executive of Quilter’s advice business, said there was a "massive" advice gap in the UK but the industry struggled to explain the "substantial" difference advice can make.

He said: "We become our own worst enemies as people don’t trust the industry, are not convinced of its value, and believe they can achieve their financial goals on their own.

"Adviser Delta gives advisers the framework to put a figure on the difference they are providing to their clients. Crucially, this is about more than just the investment performance.

"It goes back to the basics of what advice offers. It’s about taxation, investment choices and how you help your clients navigate emotions, behavioural biases, and the practicalities that life throws at them."

Mr Thompson added: "When reviewing the merit of professional services, consumers naturally want to understand what are they getting for their money?

"That’s a question the financial advice industry has struggled to answer because much of what we offer is intangible. This formula dramatically changes that conversation."

Quilter identified characteristics of a typical unadvised portfolio saw investors favour a UK bias, with a lack of asset allocation and purchase of "attention-grabbing" assets, all of which the wealth manager found risked decreasing returns and increasing risk. 

Adviser Delta calculates a percentage figure which demonstrates the annual difference between these non-advised characteristics and the value added by an adviser through buying power to leverage price or access product enhancements. 

Quilter applied Adviser Delta to an example client, a married 42-year-old man, with two children, who is a higher rate tax payer, with a lower rate tax paying partner, an estate over £1m and 22 years till intended retirement age. 

Using the below figures, the overall differential value of advice calculated for the client was 4.04 per cent per annum. 

Value of advice mapped:

Andrew Clare, professor of asset management at Cass Business School, said perhaps one of the reasons consumers were slow to seek paid-for advice was a failure by the financial services industry to demonstrate the associated benefits.

Mr Clare said: "By thinking carefully about the embedded value in financial advice and by calibrating its value, Quilter's research provides a challenge to those who believe that one cannot put a value on sound financial advice, and also to those who believe that such advice is not worth paying for."

rachel.addison@ft.com

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