How to manage negative returns

1. Clearly attach the advice fee to the adviser and the advice. If a client knows and chooses; how a fee will be paid, how much the fee is and what is provided for the fee then why would the returns change anything? Perhaps there is a need to refocus on all the other benefits of advice to support this and that is why our review reports list the things that an adviser has done up front such as: ‘Making sure that you are not paying any unnecessary tax’, ‘ensuring that you are taking the level of risk that you are comfortable with’, ‘making sure you are in the right product’, ‘making sure that their investments are regulated ‘ and leading onto the next point ‘ that you plan is on track’.
2. Make a long term, cashflow plan. If clients can see that by following the plan they can afford the things that they must, like to or dream of buying with their money in the future nominal returns shouldn’t matter. Of course, this only works if the inflation and growth assumptions are reasonable for their risk profile and based on objective data. Over-promise and it only compounds the problem. As well as mitigating some of the money illusion, being able to engage in the planning process, being heard and a quality understandable plan has its own distinct value.
3. Illustrate the effects of inflation and use real returns in the plan. Rather than being the missing information the effects of inflation can become taken as read if it is built into a consistent process from risk profiling, through cashflow planning and review.

Beyond the Money Illusion there will be some scepticism about the value of financial advice if it does not improve the client's wealth by more than its cost and that is understandable given the trends and habits over the last 10 years.

In the way that a bull market made it easier to attach the value of advice to investment returns a period of negative returns will compel us through necessity to revisit the principles, thoughts and techniques around the implementation of RDR.

I have been an adviser that charged non-contingent non-provider facilitated fixed and hourly fees, I have managed teams that operated this way and I know many advisers that still do this today.

It does work and consumers like it. Who do customers respect more when selling a house? The estate agent that charges a contingent percentage or the solicitor who charges a non-contingent fee? In the time since RDR we have seen an increase in ordinary people paying for personal services that they could theoretically do themselves.