Matthew Surfleet, commercial director at FE, takes a look at the many ways advisers can use client reporting tools to demonstrate the value they add.
In a post-RDR world, communication with clients has never been more important. Commission structures gave the – albeit misleading – impression that clients were getting financial advice for free.
Now that IFAs have to charge for their time, investors are more inclined to review whether they are getting value for money and whether to retain their IFA – and even pay for advice at all.
The onslaught of online services catering to DIY investors makes looking after one’s own investments easier than ever before.
How reporting tools are changing the advice process
Advisers must, therefore, demonstrate the value they add and the investment outcomes clients have achieved as a result of their advice.
A compelling way to illustrate this involves using a portfolio builder or simulator tool to demonstrate not just the performance a client has achieved, but how returns would have been different without the IFA’s input.
The client’s original portfolio could be used as a reference point. For longer-established relationships, a synthetic portfolio could be back tested over 12 months or longer as if no changes had been made that year – and then compared with actual performance incorporating the IFA’s recommendations.
Equally, this type of comparison can illustrate disasters avoided by mistakes the IFA stepped in to avert. Some tools also attribute performance, showing which asset allocation or fund choices generated the greatest return or diversification.
Most investors want funds to deliver sufficient returns to cover their total expense ratios, beat inflation and outperform benchmarks. Similarly, recommendations from IFAs should ideally be profitable enough to justify the fee incurred.
While returns are attention grabbing, clients do not always grasp the value IFAs add by constructing portfolios where volatility is smoothed out, perhaps by diversification or by choosing investments which achieve the client’s aims for a smoother ride.
For a client invested in a range of funds recommended by their IFA, the volatility of performance actually experienced could be compared to a portfolio comprised from market indices.
Not only does volatility destroy value, it also keeps clients awake at night – and they may not appreciate their IFA’s efforts unless they see hard evidence in a graph showing the rocky ride they might otherwise have endured.
This article continues…
Javid's first fiscal announcement
'Misunderstood our profession'
Newly created role
No direct replacement planned
Could be delayed by general election