Self-Created Gap?

I keep reading about the new and growing “advice gap”.  Apparently, as a result of RDR, clients are now more clued-up about charges, and have a growing appetite for DIY financial services.  This assertion is backed up by various research polls suggesting various proportions of clients who have previously used an adviser (30% in one recent article) are no longer interested in seeing an IFA.  If true, that would indeed be something to be concerned about.

But, I’m not convinced.  Indeed, sometimes it feels like I’m reading these reports from a different place.  I simply don’t recognize the trends which are apparently so prevalent.  When large sections of the adviser world were saying clients will never pay fees, or indeed more recently when we hear clients will not pay a fee of more than £37.50 (or some such made-up number), I think of our own business and how we never seem to have those problems.  Indeed, we could cite any number of examples of clients, everyday people, who have the cheque book out before we can even get around to the subject of fees.

So I’m left wondering, what’s going on and my view is it’s self-created.  Consider this; a client has been with an adviser for years (“he’s a good chap, always friendly”), and now as a result of RDR, the adviser does two things.  The first is he tells the client he will have to charge a fee in the future.  Now, if I was the client, the first thing I would ask is “what did you charge before?”.  That conversation could go different ways, but at the very least it would cause major damage to any trust the client had in the adviser – “I thought it was free, or he was paid by the life company.  I never thought it came out of my own money”.

The second thing the adviser does is INCREASE his charges.  Why?  Because the world is telling him that he can’t survive on the margin he was previously on, he should segment the client base and focus on the higher-end wealthier clients and, lets be honest, if he was a 7% bond-merchant before the changes, he wants to introduce fees at a level which get close to that amount.  A recent article in PA highlighted five brokers and their new fee models.  There were some interesting things in there, like the desire to move the trigger point for fees from implementation to the advice stage, but the overwhelming feeling that I got from it was how expensive they all are.  Initial fees for a £50K investment ranged from 3% to 6.5%.  For smaller investments, it was much worse – up to 10% for a £20K investment.  Of course, the larger the investment the better the value, but even at £100K, which is large in my world, total fees still ranged from 2.25% right up to 5.75% - and that’s before we even get started with ongoing fees.     

  

So the client is now faced with a lack of trust in the adviser, and by extension the entire IFA industry, and eye-wateringly high fees if they do use one.  So what do they do?  The same thing most of us would do – “no thanks, I’ll do it myself”.

My only conclusion to all this is make sure you choose your own path.  Don’t listen to the industry.  Or rather, listen but then make your own mind up, based on your own client base and your own experience.  After all, its your business.  If it fails, you’re the one carrying the can!