We have to believe that financial advice or financial planning has a value in and of itself.
In the run-up to and during the implementation of RDR this was a central tenet and there have been numerous studies since from the likes of Vanguard’s Adviser’s Alpha and Quilter’s Adviser Delta that demonstrated the value of advice rationally and numerically.
By now I would have hoped that it would be common knowledge and taken for granted that it is worth paying for advice regardless of whether you have investments let alone whether they have increased in value sufficiently to cover the cost of that advice. So why isn’t it?
The transition from commission to fees was daunting and change is not easy. In the run-up to RDR particularly with the global financial crisis in our near view mirror we dreamed of a long bull market to make our lives easier.
The rest is history; we have had an unprecedented period of growth in assets that has conveniently covered the cost of advice and service. Fees were disclosed but not really felt.
Perhaps while the change was easy it was never fully completed. About 15 years ago we wanted to be ‘Financial Planners’, then all of a sudden we all wanted to be ‘Wealth Managers’, switching the focus from the clients to the investments, often chasing assets under management rather than the number of happy paying clients.
Even Vanguard’s and Quilter’s excellent studies intended to demonstrate adviser value are named after investment terms relating to investment returns because people were looking for evidence that the advice improved the investment returns even though the studies proved the intrinsic value of the advice, regardless.
As a company that began by making Cashflow planning tools accessible online we have seen the use of our fund research function eclipse the use of our planning tools.
In a world where Andy Bailey is warning of deflation and negative interest rates the idea of delivering excess nominal returns that delighted clients for the last 15 years may prove impossible and even dangerous, the Treasury has already identified that this, combined with low interest rates, risks driving clients into making bad decisions or unsuitable investments or being scammed.
Investment is only deferred spending so ultimately the measurement of a good investment is whether the money I do not need today can be spent on the things I need to spend it on in the future rather than a headline number.
For much of the 1970s and 1980’ when cash was paying over 10 per cent costs and charges were hidden in investments, the net returns still appeared worthwhile because the numbers were bigger.
Yet in the early 1970s and 1980s inflation was even higher, so the interest rates and many investments were reducing rather than increasing the investors' future spending power. Still the headline number was big enough to hide the costs and charges and satisfy the clients.