43% of financial advisers felt pressure on their charges in 2020
This was one of the headline findings from the Schroders Annual Financial Adviser Survey undertaken at the end of last year.
In an FCA[1] paper that swiftly followed in December, the number one reason that was given by members of the public with cash to invest for not taking advice was that they would not benefit. The paper also revealed that most people who would seek advice expect to pay no more than £250, regardless of the amount invested!
Seems like we have an interesting challenge…
This latest research from Schroders and the FCA re-opens the price/value debate. Financial advisers are reporting price pressure and potential clients are expressing a view that they do not recognise the need for advice and are not prepared to pay much for it.
The challenge is that the only person who can assess value is the client who will base their perception of value on how the service proposition was described to them at the outset.
Save, invest and take risk
Post RDR, a plethora of new service propositions were created. These were designed largely around the number of client meetings and the issuing of statements, annual reports and newsletters. With the benefit of hindsight, these activities did not reflect the value of advice and the world has moved on.
A report by the International Longevity Centre[2] indicates that the value of an adviser can be ascribed to:
- Getting clients to save, invest and take risk
- Getting them to stay invested
- Maintaining client confidence
Does this help? It might feel somewhat simplistic but many advisers spent significant time in 2020 encouraging clients to stay invested and ‘weather the storm'. Following the initial downturn, the subsequent bounce has meant that many investors are in a more comfortable place financially and emotionally because of this adviser activity.
The value of the adviser's role in this cannot be overlooked. The FCA's paper stated ‘we want more people to invest' and identified that 37% of clients with more than £10,000 to invest, held cash only. The FCA went as far as to say that this could lead to ‘potential harm': a client investing £10,000 in cash between 2008 and 2018 would now have £11,720. If they had invested, this would now be worth £21,905.[3] Please remember that past performance is not a guide to future performance.
So if we want an example of the value of advice, the FCA paper can assist!
Perhaps 2020 also highlighted another area where advisers could add value on an ongoing basis: they spent time reassuring clients and keeping them invested.
A good night's sleep
The FCA indicated that 90% of clients are being placed into ongoing charging models which in their view may be inappropriate. However, active steps taken by many advisers during the pandemic can support the case for ongoing charges. With market volatility, one adviser described their role in early lockdown as ‘propping up clients' emotions'. Addressing the FCA's point about clients holding cash rather than investing, 2020 was a real live demonstration of the value of ongoing advice. Many advisers held clients' hands and reassured them about staying invested.
If some advisers are feeling that their fees are under pressure, then it's back to the drawing board to describe the value they deliver. Gone are the days of ‘gold, silver and bronze' service propositions. The value of advice is quite simply to ensure that clients have a good night's sleep!
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Gillian Hepburn, Intermediary Solutions Director, Schroders
Important information
Marketing material for professional clients only. The Schroders Annual Financial Adviser Survey was conducted in October to November 2020.
This communication is for information purposes only and does not constitute an offer to sell or any solicitation of any offer to buy securities or any other instrument described in this document. The information and opinions contained in this communication has been obtained from sources we consider to be reliable. No responsibility can be accepted for errors of fact or opinion.
The views and opinions contained herein are those of the individuals to whom they are attributed and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. Insofar as liability under relevant laws cannot be excluded, no Schroders entity accepts any liability for any error or omission in this material or for any resulting loss or damage (whether direct, indirect, consequential or otherwise).
Issued in January 2021 by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU, registered No. 1893220, who is authorised and regulated by the Financial Conduct Authority. UK001977.
[1] Evaluation of the impact of the Retail Distribution Review and Financial Advice Market Review, December 2020
[2] What it's worth: Revisiting the value of financial advice International Longevity Centre - UK 2019
[3] Evaluation of the impact of the Retail Distribution Review and Financial Advice Market Review, December 2020
