I started scribbling this piece before I saw Phil Bray's excellent and balanced argument. Indeed, I thought of binning it wondering if there is much to add. Unsurprisingly, I cannot resist adding my views.
My intention is to argue from the position of outsider, consumer or layman.
Over the years we have heard debates in many professions, industries and trades on transparency versus opacity; disclosure versus non-disclosure; overt versus covert. I cannot remember a single occasion when the media or court of public opinion found for the non-disclosure argument. In the 80s, there was a battle against commission disclosure - lost. In the 2000s, funds fought charge disclosure - lost. Later in the 2000s an argument to retain commission over transparent fees - lost! Asset managers, fund supermarkets and networks argued for the continuance of under the counter bungs (so-called by Panorama) - lost. Transparency and disclosure occupy the high moral ground. Advisers must continue to follow suit.
Simple question - as a consumer, when you are buying a product or service, do you Google the market and look at, inter alia, cost? Don't you feel more relaxed engaging with businesses when you know the price is within your parameters? Why is it different for potential customers of adviser firms?
How many times have you heard a question along the lines of, “How many advisers do you know who you would recommend to your best friend's Mum?” The answer is usually “Not a lot.”
Imagine you are a very good businesswoman, but have no experience of financial planning. How do you find a good adviser? Experts say you should interview three. How do you choose the three? I reckon it is close to impossible.
I tried Unbiased,co.uk and MAS, with detailed input. In each case, the top three were quite unsuitable. I know it; the inexperienced would not.
If you doubt me, just try it yourself.
Referral may be a good route, but remember, the greatest number of referrals go to SJP.
Recently, when judging some awards, I looked at the websites of two candidates about whom I had doubts. Both wrote volumes of self praise on the submission, but nowhere on the website could I get a clue about cost. I am not saying this disqualifies them - it does not. However, if I were searching for my own purposes, it would disqualify them.
So, what is the reason for not disclosing?
The almost universal answer is “We need to know the problem/scope/size before quoting a price.”
Yet, over 90% of advisers charge on an ad valorem basis for all or most of their work. When we are researching costs, advisers have no difficulty in explaining their fee schedule to us. I confess, I do wonder why so many quote adviser fees at rates that would frighten Donald Trump, when most work is done by paraplanners.
There is, I believe, genuine fear that would be clients might be put off by the likely cost of advice. This is a legitimate fear, as many consumers do not value advice enough.
There is an assumption by some that consumers will broke on price and buy the cheapest. I think this is presumptuous and vaguely insulting. I know of no evidence to this effect. Consumers are experienced with online enquiries and have multiple criteria.
Is it possible that some advisers are bamboozling their prospects with the supposed complexity of the multi-faceted problem that's only they can solve, for a modest fee (sic), inadequately disclosed? Perish the thought.
The percentage of the population that employs an IFA is pathetically small, well under 5%, I believe. The main reason for this is lack of trust. Over time, full, clear, disclosure will increase trust.
To conclude my argument, let me tell you a wee tale.
The guest speaker at my rugby club annual dinner was an ex-England international - a large, imposing and persuasive character. As president of the club, I sat next to him. He works for a very large, well-known, restricted advice firm. I asked him how his clients reacted to their charges. He replied that clients are not interested in charges. I was loath to argue!
The industry has argued that charges are not important for years. At last, that argument is being seen for what it is - a lie. Advisers and providers are much more focused on cost and rightly so. There is a lot still to do, and full, open, disclosure of charges on websites is a small but necessary step.
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