"'Selling a product is one thing, selling advice is another'. That is one of two great lines the always-opinionated Clive Waller came up with a couple of weeks ago.
Waller released an excellent piece of research, supported by Aberdeen Asset Management, entitled The Emperor’s New Clothes about RDR.
Is RDR a case of the Emperor’s New Clothes?
His other great line was about what he called “average life companies and average fund management houses”.
But back to advice. The majority of the debate about RDR from a regulator’s perspective has been based around remuneration. Its view could quite easily be summarised as “commission bad, fees good,” without any intelligent discussion about what exactly consumers are being asked to pay.
It is one thing selling a product to a client – usually needs driven – like life assurance or an ISA, but it is quite a different thing providing a service or what you might call holistic financial planning.
If you were to sit down with a lot of existing or prospective clients and tell them it is going to cost them £2,000 plus VAT to do them a financial plan, they will wince because they do not understand the volume of work that goes into the preparation of that plan.
If you have a car of a certain age, you know you have to take it in for an MOT each year and you keep your fingers crossed and hope there is nothing wrong. If there is nothing wrong with the car, you get your certificate and a bill for around £100. In reality, there is usually something wrong with your vehicle and you expect the mechanic to tell you what needs fixing.
If he charged £500 and did not fix the bits that were wrong because he has moved to a new ‘business model’ you would be a bit cheesed off. But if he fixed everything and gave you the certificate for £500 then that would seem like a fair service.
But new wiper blades and a couple of headlamp bulbs are the ‘products’ that help get the outcome you need – in this case the MOT.
There is no requirement for an annual ‘investment or financial’ MOT, just as there is not a requirement for an annual health check at the doctors, but both of these are advisable.
In the last 20 years with the slow withdrawal of free dental or ophthalmic services, look at the reduction in the number of people who go just for a one-off check up. Has that been good for the NHS or the health of the teeth and eye sight of thousands of people?
The reality will be the same for hundreds of thousands of private investors who don’t fall within the ‘business model’ many advisers are now having to contemplate.
RDR is not the Emperor’s New Clothes, it is more a case of ‘all fur coat and no knickers’.
Lawrence Gosling is the founding editor of Investment Week. His views are his own. Any comments to him at firstname.lastname@example.org
With the vast bulk of client money now going on to platforms, who really benefits? The client, the adviser or just the platform provider?