What do you really think about financial advisers — and what do they have to say about you?
Having read more than 350 detailed responses from readers and advice professionals who responded to FT Money’s online survey, I can see fundamental cracks emerging in the client-adviser relationship — with fees at the epicentre.
Some of your responses made me laugh, such as the reader who said an adviser wearing an Hermès tie was almost certainly charging his clients too much. Others made me want to cry, including one reader’s story about her search for a financial adviser following her husband’s suicide.
Reading all of your comments served to emphasise how deeply “personal” the management of our personal finances can be. Above all, readers told us they wanted the “three T’s” — an adviser they could trust, with a transparent charging structure, who was able to provide a tailored advice.
Even if they can afford to pay for a financial adviser, I fear that many consumers in the UK are not getting all of these things.
Plenty of readers sounded off at the ad valorem model of charging investors — an annual percentage fee on the value of assets under management. However, paying for advice by having cash deducted from your investment pot is still the dominant industry charging model.
A study by the Financial Conduct Authority last year found that nearly 80 per cent of ongoing fees paid to advisers came via a product provider taking money out of the client’s investments.
Many readers also questioned the practice of “restricted advice” — where an adviser can only recommend products from a specific range of funds, rather than the whole of the market. Readers told us they hated the “hard sell” of being pushed into investment products they considered to be “one size fits all” — particularly managed investment portfolios.
Yet some of the UK’s largest advisory businesses do not allow their clients to pay fees directly, only via their own financial products. This means the adviser only gets paid when the client buys a product — and that the fee is always a percentage of the money involved. Great for the firm; not so good for the client.
When you’re starting out as an investor, those percentage fees — even when expressed in pounds and pence — may not look too bad. But over the years, they compound, taking bigger and bigger chunks out of your portfolio. Over 30 years of saving, this could add up to multiple thousands of pounds — and all the more galling if your adviser has charged you handsomely for the type of funds you could have bought much more cheaply yourself via an investment platform.
For this reason, more experienced readers said they preferred to manage their own investments and would only turn to an adviser for help with specialist tasks — such as tax planning, inheritance tax and pensions advice. However, many of you expressed frustration at being unable to find advisers prepared to work on a fixed-fee basis.
Could investment platforms provide the answer?
Although the vast majority of advisers we quizzed were not perturbed by the rise of so-called “robo advice”, these platforms are becoming more personal, bolting on the services of human advisers. Nutmeg did this recently, but Netwealth — a platform aimed at much wealthier investors — has been successfully doing this for years, offering financial planning and advice to clients for an hourly fee.
Face-to-face advice was considered necessary by the majority of readers who responded to our survey — although many now expect this to be backed up by emails, and the ability to view investment portfolios online. As markets bounce up and down, traditional advisory firms may see this as creating work for themselves as they are bombarded with calls from clients seeking reassurance about volatility.
However, those who had found an adviser they could trust held this relationship in the utmost esteem. When we asked “what would prompt you to change adviser?” one reader answered: “Either me or my adviser dying”. Several readers told us they had followed the same adviser through three or four different employers. Similarly, most had found their current adviser through word-of-mouth referrals, often from family members, friends or fellow professionals.
Even so, after three years of editing FT Money, one thing I know about wealthy people is that they hate being ripped off with a passion.
Richard Wilson, head of Interactive Investor, said at a recent conference that over the next 10 years, despite the rise of technology, he expected investors would still crave human interaction for a significant part of decision-making. The question is: who will provide access to this?
Mr Wilson predicted that the battle lines would be “redefined” at an industry level. As head of the UK’s second-largest investment platform, he would say this of course, but I think he is right.
The future of platforms will be the personalisation of financial advice — and technology will be a huge enabler in this. If you want my advice, it will be transformational.