We may only be a couple of weeks into 2017 but already there is plenty going on to rouse us from our post-Christmas and New Year stupor.
As an example, back in July 2016, I used Oscar Wilde’s words to illustrate the hoary point about charges in our industry – that a business should understand what to charge, what it is charging for and when to charge. I was reminded of these words recently when I saw a headline asking why restricted advice is not cheaper than independent.
The research underpinning the question is contained in the FCA’s Data Bulletin, which was issued in October 2016, so nothing new in this and, likewise, nothing new in once again dredging up this endless debate over pricing.
Indulging this fixation over costs for a moment, my immediate response is to ask why restricted advice should be cheaper compared to independent. Does, for example, equating restricted advice with less investment choice mean the service is inferior?
In other words, do restricted firms have less opportunity to charge a premium for the service provided? Or is it the case that the costs of running a restricted business are lower because the costs of supporting a whole of market proposition are higher?
Whichever point you wish to focus on, both are flawed in their logic and demonstrate how our fixation with pricing hinders rather than supports client engagement. After all, what a business charges should be in line with the value of the benefits that the business provides for its customers.
My view is that our obsession with price is largely due to history and stems back to an adviser’s perceived key role as a ‘fund-picker’ – that is, in selecting the appropriate funds for a client’s needs. The point being that should a firm with access to fewer funds charge lower fees?
IFAs are keen to promote this distinction between independent and restricted advice – however, even IFAs will admit they do not look at all the options in the market when giving advice and will use their preferred tools to research the market. This is largely through a platform of choice with preferred providers and funds.
My firm, Sandringham, is restricted, but we are independently owned and undertake research to add/take away products/funds appropriately. Restricted advice for us is about how best to manage risk and volatility in client portfolios.
This point also undermines the view that the costs of running a restricted business should be lower because, in some way, compliance and research costs are lower. Even if that were the case, these costs represent a proportion of the total costs of running a business and are unlikely to have a material impact.
Real Issue
Of course, I understand the real issue in this restricted versus independent debate is the concern vertically integrated businesses are taking margin at every stage of the value chain, which is somehow unfair to the consumer.
The Financial Conduct Authority is not a pricing regulator but wishes to ensure that charges are open, transparent, clear and not misleading. It is disingenuous to assume that customers are behind a veil of ignorance when is comes to costs. The fact is that customers will engage when they perceive value.
To be clear, this blog is not designed to promote or knock one approach above another – both restricted and independent have their place in the advice landscape. The issue is that there are many factors that influence value and customer engagement and we are wrong to keep the emphasis on cost.
In other words, in 2017 – as financial architects as opposed to fund pickers – the real focus needs to be on your customer value proposition.
Published on 17th January 2017
