Thursday, 23 June 2011

Panorama - Can you trust your bank?

A recent episode of Panorama focussed on financial advice mis-selling cases predominantly around older customers who had gone straight to their bank at retirement with a lump sum of money to invest.

Although the focus of the show was on bad advice and "dodgy" practices of some banks' advisers it was so obviously apparent that product transaction and payment for such was inherently the cause of the advisers focus on the sale and themselves rather than the needs of the client.

I have never strongly opposed RDR and only ever in the early days been mildly sceptical of the changes that were coming. Most people tend to dislike change so I forgive myself for that one... As time has passed and both the gravity and detail of the changes RDR will bring has it become so clear that this is the best thing that could possibly happen for our industry.

While a product sale sits at the heart of an adviser's remuneration the cloud of prejudiced selling will remain, whether it is actually there or not. In some cases, as it appeared with certain bank advisers its live and kicking and may well remain post RDR given the arena in which the banks are likely to sit.

Getting paid to GIVE ADVICE will be a fantastic step forward rather than trying to "sell products". I personally cannot wait but the Panorama program made me wonder two things.

1) would the people that appeared in the program be willing to pay for advice regardless of the outcome. My suspicion is that they would not. Shopping around, which one of the mystery shoppers mentioned to the bank adviser as their course of action will become an expensive exercise when you are paying for the advice, not just on the final purchase of a product.

This is likely to effect IFAs more than the Banks which means Banks may well look more attractive to thrifty investors but will more than likely lead many to receiving advice which may otherwise have been more holistic and less focussed again on the sale of a product.

2) The people who claimed to have received bad advice did so because their investment "lost" money. At least one of the investors then committed the cardinal sin for retail investors and cashed in, crystallising the loss and concluding her investment experience at the worst possible time. The actual product variant was not mentioned in the show so there may well have been reasons other than sentiment for why she cashed in but as we have all seen at one time of another, clients do the strangest things!!!

So getting to my second point, would paying for advice stop a client from complaining for "bad advice" or is the only way to avoid that type of complaint to put their money somewhere where it only ever goes in an upward direction.... Cash??? (Lets not even get embroiled in the effects of inflation)!!!!

So while I don't see RDR making retail investors any less quick to complain when their portfolios stumble I do think the move will mean the advice client receive, from IFAs at least will be far better because the ADVICE is paid for, not the product which may or may not be at the end of the process...

Wednesday, 1 June 2011

Why School Fees Advice is so unique

The first question many new and prospective clients ask is, what is school fees advice, how does it differ from any other type of financial advice?

The reason people ask this question is obviously to understand "what it is" but of course also, because they have certain assumptions that they want clarification on. Many people back up or clarify their first question with, is it some sort of savings product.

That always causes me to smile a little mainly because the reference to "it" is so less product related when it comes to school fees than many other generic forms of financial advice. The "it" I say, is purely a service which helps you to manage the cost burden of school fees through to completion.

There is no "it" in terms of product simply because every person comes with a different situation and requirements.

In a previous life, as an investment adviser people would come to you with broadly the same circumstances, they had some money, be that recently acquired or an existing portfolio. They wanted me to look after, give them advice about how best to manage these funds which broadly speaking ends in a closely similar vein of advice. Assuming they have the suitable time frame, disposable income and attitude to risk I would invest the money.

The key difference is in the importance of the possible outcomes. While nobody wants to lose money very few investors properly understand the relationship between the fundamental process of investing and possible outcome. As a result, many many investors (retail investors) achieve what they perceive to be a poor investment experience.

When investment values are going up and up individual investors can all to often pay only lip service to the folly of a sentiment driven market. When that sentiment drives prices values down that is when they start jumping up and down, even though they new that it CAN happen.

So as an investment adviser the service you are providing is much harder to define given that you are mainly just investing money and then explaining each year why you think values have gone up or down...

Fortunately it is many years since I became a school fees adviser so my focus is now much less on the underlying investments themselves. I outsource the investment to either a discretionary fund manager or to a asset class manager (sometimes incorrectly referred to as passive manager).

The service I provide to clients is firstly to help them understand the likely total cost of their children's' school fees, secondly to help them identify without any intervention from me how close they are to realistically achieving the school fees ambitions and finally to show them the areas on which we can focus to improve the management and payment of their school fees long term.

This has nothing to do with next years ISA or the value of their pension (Both of which will potentially be important later in the advice process) but rather will they have enough money to pay their school fees?

That is why I find the job so interesting and why it is so much more than "where do I investment Great Grandmother's inheritance?"

Once you understand the path of achieving their school fees commitments then as a financial adviser you consider the specific elements of savings, investments, pensions, mortgages, insurance etc.