Let's talk about......

As a marketing professional I know headlines work, as does strong language which fires up the blood. So I had a small smile when I saw the latest piece from “This is Money”, parts of the article consider some interesting aspects of advice and the new world but others are wholly incorrect and poorly researched.

In this blog I just want to consider some aspects of this article. For over 20 years I have worked in financial services, for a long period of time for insurance companies and latterly I developed a direct to consumer investment platform. In all of this I had built a picture of financial advisers which matched the view painted by many journalists. More recently I started working in a financial planning practice and what I have discovered is a very different picture.

My point is this, the picture we see if often clouded by what we read and are told. If we take away the noise what we see is often very different.

So looking at Tanya Jefferies article, I want to talk about some aspects of this over a few blogs called “let’s talk about….”

The first one is let’s talk about fees.

Let’s talk about fees

I am one of those people who believe there is a mis-buying scandal waiting to happen. Let me explain. Let’s take a very well-known direct platform – recently another platform moved to a clean structure, by this they decided to charge a quarterly fee of £20 and rebate all fund fees back to the client – what did this well-known platform do? They wrote to clients (I assume who had moved their money to this other platform) and offered them to come back to them because they didn’t charge anything.

Now, it is common knowledge within the industry and with the research I did that this platform takes up to 1% in fees from the fund houses. Now we talk about influence for financial advisers but you have to ask if you are going to be paid 1% a year in fees which funds will you promote?

The problem is this, at some point this company is going to have to come clean and this is a challenge because actually if I buy a fund from them at 1.35% p.a. do I really care if they get 1% of that fee - possible not. But as a company the average client has £40,000 invested with them, say conservatively they got on average 0.75% on the client investment (i.e. £300) how will then charge the client.

We know from surveys that clients won’t pay much over £50 a hour on advice so they are unlikely to pay much for non-advised services. So say this big company has to move to a clean structure where funds charge 0.75% what will they charge? If they charge £20 a quarter then they are going to make a massive loss compared to previous profits, if they charge a percentage then what will this be?

The point is this, the mis-buying scandal with direct platform is perception it is sold as free when in reality it is not. The end consumer doesn’t lose out although they tend to have promoted those funds which offer the biggest rebate. However, come 2014 all of this will be blown wide open.

So let’s talk about these nasty commission hungry financial advisers, some advisers have sold commission high products in the past and I will not hide from this but what I discovered when I came into this industry was that the industry had changed massively over the last ten years. In the majority cases I have seen financial planners have a clear fee structure and service proposition.

Of course, there have been platforms where the adviser could get a kick back from the fund house but this was often only between 0.35% and 0.5% and so a lot less than any direct platform. So actually like for like advisers were often being paid less than the client going to a direct platform, and often in terms of charges the client was getting a better deal by going direct.

I suspect if the journalist did some digging around she would find that advisers possible were already recommending smaller value clients go direct not because they couldn’t afford the fees but because the client could get a better deal.