Financial planner Chris Daems received an email from a provider, for the thousandth time, telling him a ‘simple way' to boost his assets under advice. Here, he explains why IFAs should break away from ‘provider paternalism'…
As a business owner and a proud financial planner I firmly believe that you never stop learning in our particular profession and I am not afraid to admit I'm a bit of a magpie when it comes to ideas.
I am more than happy to take and use ideas I think will benefit both my clients and my business and I am also happy to share some of what we do we think might benefit other advisory firms.
However, the other day I received an email from a product provider. It is one I have had land in my inbox in one form or another a thousand times before. The title of this email was: "A simple way to get assets under advice".
This email went on to tell me that the way to 'get more assets under advice' was surprise, surprise, a thinly veiled pitch to sell a bit more of their product. Now, I'm really sorry Mr or Mrs product provider, but while I care about delivering a really good service for my clients at both an initial and ongoing fee, which represents good value for both me and my client, I really couldn't give a monkeys about 'getting more assets under advice' or using your product to do it.
You see, for me, Mr or Mrs Provider, how we get paid - whether through fixed fee retainer, time cost or as a percentage of assets - is irrelevant. What is fundamentally more important is that we actually act as a gatekeeper and professional custodian of our clients' wealth and not as 'distributors' of whatever product you might deem appropriate.
And, on that point, I have seen a lot of changing trends in the 'distribution' space over the years. Where the past of 'product distribution' used to be through independent financial planners and advisers (as well as banks through the bancassurance network) it certainly seems the trend for this route to market has reduced in importance when product providers can purchase their own 'distribution channels' to efficiently deliver these products.
It is why your large, vertically integrated firms are currently the biggest players in the advice space and why Schroders is now making such a big play into this market.
Now, I understand the argument that this 'restricted advice' should be more cost efficient for clients and, as a result, allow more individuals to get access to advice and achieve financial independence than if advice was not provided at all.
And I do think the 'access to advice' point is a fair one. There is certainly greater potential for larger firms to provide more people with more 'advice'. However, my challenge with 'cost efficiencies' in vertical integration is that they often do not translate to reality.
All you need to do is look at the cost of an investment proposition with a large network when compared with a truly independent adviser proposition, especially if the IFA takes an evidence-based approach to investing their clients' hard earned money. I would be really surprised if it comes anywhere close to being as efficient cost-wise.
My greatest challenge, though, is the unavoidable bias that comes with these firms. The reality is that, in vertically integrated businesses, the targets and incentives are all too often skewed to accumulate 'funds under management'.
If this is one of the drivers of a vertically integrated firm, which for most I am pretty sure it is, then I wonder how much of the advice is skewed in the best interest of the targets of the vertically integrated firm and not in the best interests of the client.
Even in the best case scenario there is an unconscious bias to take action to deliver the results of the firm and not to the benefit of the client. The worst case scenario is this advice is delivered intentionally. The reality probably sits somewhere in between the two.
Giving professional financial advice means that, sometimes, the best thing for clients to do is nothing at all, particularly if they have defined benefits schemes. I do wonder how many of these large 'distribution' firms consistently tell clients to 'retain what they've got where they've got' if the money is currently appropriately invested.
Financial advice delivered using a vertically integrated model has been phenomenally commercially successful for the firms involved. I also appreciate that, in a capitalist economy, people have got to run their businesses in any way they see fit and consider fair.
However, it also means that if you are proud to retain your independence as an adviser, and as a business we certainly are, it is more important that we deliver advice that is fundamentally different.
As a starting point, I believe independent advice should put the client and not the product first. I also believe we should be the gatekeepers and protectors of our clients hard-earned wealth not seen as 'distribution' by product providers.
With more and more advice being delivered by advisers effectively owned and managed by product providers, those of us who are truly independent need to look ourselves in the mirror and decide if we are happy to deliver wholly impartial and independent advice.
This will include at some point telling clients they should spend their hard-earned wealth and delivering advice impartially in the knowledge the fees and incentives you receive for your advice are not linked to retaining 'funds under management'. This also means changing our language of success.
I would suggest that 'funds under management' or 'funds under influence' are definers of success that product providers have told us to use. We need to break away from provider paternalism and use definitions from people that are far more important than product providers: our clients.
The reality is that financial planners can judge their business success in a number of different ways where the focus is not on the money 'advised on' by the firm but instead by more meaningful factors. Examples might be how many clients you have helped achieve financial freedom, or perhaps how many clients families you have helped protect or, god forbid, something as simple as how much profit you make.
Maybe, just maybe, firms who decide to stay independent can ditch the old 'assets under management' definition of success and adopt something directly linked to the delivery of good advice and commercial success instead of just distribution of more and more product. I believe it is one of the ways smaller independents will continue to survive and thrive. What do you think?
Chris Daems is director of Cervello Financial Planning
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