BLOG: You don’t know what you’ve got till it’s gone
Previously I wrote of advice being priced out of many people’s reach by the Retail Distribution review but there is a other potential outcome. Will the disclosure of fees and commissions mean consumers believe financial advice is good value?
It will doubtless come as a surprise to many clients just how much renewal commission advisers earn annually for business written way back in the day and which has been simply ticking over in the background. Payments historically disguised in complex product charges have arguably dented the value of some investments over time.
Regulation not only brings more clarity to consumers but also less complication and competition to the market. As regulation makes products simpler and more easy to understand, product providers are contemplating cutting out the middleman and going direct to consumers, with execution-only propositions.
Regulation creates expensive barriers to entry for competition and stifles product innovation (too expensive and risky). Consequently, the broker currently servicing “mass affluent” clients (savings of around £50k) will get squeezed on the demand side by price wary consumers and on the supply side by margin hungry product providers.
Between the two the adviser needs to demonstrate to the consumer what value he or she can really add. If advisers get this wrong, the worst case will be a new world without affordable advice for the “mass affluent”. This is bad because not only do many people need advice, they appreciate it even when they suspect they have the answer themselves.
That has a value.
Moreover good advisers can really sort good products from run of the mill products. If we have easy to understand products on an execution only basis this will mean a diet of steady, low risk investments. All well and good for some but if you are willing to take a bigger risk you may find you cannot / will not afford the cost of the advice you require.
Investing is about winning on some and losing on others. Without that opportunity you entrench wealth and stop social mobility. Everyone has the right to take a risk and when it comes to investing there is little advantage being like everyone else. Advisers will need charging models that reflect the time and expertise but also reflect success over a given period otherwise we may not only see people priced out but also turned off.
‘Don’t it always seem to go that you don’t what you’ve got till it’s gone’, sang Joni Mitchell back in 1971 in “Big Yellow Taxi”. It’s a sentiment that may well prove true of financial advice.