Mike Morrison revisits the question of just what constitutes 'value for money' with an intangible such as financial advice and how anyone might set about measuring it
This time last year, I wrote an article on The true value of financial advice. As the debate remains firmly on the agenda for consumers and financial advisers alike, however, I thought it worthwhile revisiting some of the key figures:
* 28% of adults prefer the concept of face-to-face financial advice but only 8% are prepared to pay more than £100 an hour for such advice.
* One-third of households with £100,000 to £150,000 of savings and investments said they would pay no more than £50 an hour for advice.
* A further third that they would not be prepared to pay anything.
* Just 7% of people in this wealth bracket were prepared to pay more than £100 an hour.
I also quoted some points from an article I had written in 2012:
* Clients would expect to pay an average of £38.90 an hour to use the services of a financial adviser.
* They would also expect a full financial review to last around four hours - in other words, £155.60 for a financial review. The same research suggested advisers spend approximately 16 hours producing a client report and, if this was correct, then the hourly rate would equate to £12.50!
* YouGov research at the same time suggested 63% of consumers who were not currently paying for advice would prefer to pay at a flat rate, as opposed to an hourly rate (12%) or a percentage (16%).
Bearing all that in mind, I was drawn to a recent headline - ‘Would you pay £184.58 an hour for financial advice?' and was interested to see this is now a good estimate of the average hourly rate.
So where are we today? Well, the subject of what advisers charge and the elusive search for ‘value for money' is certainly a hot topic.
We are in the middle of the Financial Advice Market Review - albeit without a timetable for completion and seemingly lacking much consumer input - and the Financial Conduct Authority (FCA) recently published its Sector Views 2017 report.
This contained a few good pointers on advice, including the suitability and awareness of advice. The FCA also, however, expressed concern that consumers ‘buying' financial advice might not be receiving ‘value for money'.
So just what constitutes ‘value for money' for an intangible product such as financial advice and how do you go about measuring it? If people can shop around and change their adviser but do not, is that not evidence of a satisfactory consumer relationship? Rather than focus too much on the part of the market that works, let's make sure we set our sights more widely.
I often point friends in the direction of financial advice - many have little idea what a financial adviser can actually do for them or how much they can expect to pay. Indeed, for many financial plans, the success/value will be in a hassle-free retirement with money to spend/pass on as appropriate.
For me, the focus must be on the transparency of these costs and building awareness of the financial benefits advice can bring. Perhaps a move away from percentage charges would assist.
I do, however, accept that some consumers may not be able to afford such rates and this is arguably where further regulatory work should focus.
‘Robo guidance' - I hesitate to use the term ‘robo advice' for what is surely just investment in line with an algorithm with some guidance attached - might assist some people, as will more nuanced information/guidance at the right time and perhaps with a few nudges! It will be interesting to see how many financial advisers decide to offer some kind of robo service and whether there really is enough demand out there to warrant it.
Our financial lives are becoming more and more complex and the financial risks are gradually being transferred to us as individuals. The value of good financial planning will certainly increase but let's maintain the good start that we have.
Mike Morrison is head of platform technical at AJ Bell
The chairman isn’t answering his email
Reforms not enough
An economic cocktail
To encourage consumers to shop around
Will report to Pat Shea