Precision – delivering the clarity and value your clients deserve

At a recent Investment Association event, keynote speaker Charles Randell, Chairman of the Financial Conduct Authority (FCA) highlighted that one of the biggest expectations of the investment industry is allocating clients’ money wisely to investments that can add sustainable long-term value. Although this is not a revelation, and is something we all work hard to achieve every day, he went on to caution that the disclosure of costs and charges does not go far enough in helping clients find the best value fund: “High fees take a heavy toll on the retirement outcomes of millions of people. But improvements in costs and charges disclosure – vital as they are – aren’t enough to help fund customers find the best value on their own. It’s just too complicated, and they are at such an information disadvantage compared to you”.

Crystal clear / information advantage

Whilst we unreservedly acknowledge that clients deserve good value, that’s a given, another element of our job is to bridge the knowledge gap and provide clear, transparent, suitable advice to help our clients make an informed decision with their finances.

Over recent years, transparency has been a focus for regulators who are looking to drive the provision of greater clarity for investors, increase competition and ultimately reduce costs. By providing clarity on fund and platform charges, investors can make better-informed decisions by improving their ability to draw comparisons between funds and allowing better analysis of fund and platform charges alongside investment aims.

In an effort to make UK authorised funds the best value they can be, the FCA have stepped in to strengthen fund governance with independent directors and requiring annual assessments of fund value, although this only extends to UK authorised funds at present.

Impact on returns

Although the fact that charges eat into investment returns and asset values over the long term is old news, the difference in total returns impacted by charges can be a real surprise for investors. As disclosed in the FCA’s Asset Management Market Study, generally the higher the charge, the lower the return. Morningstar rates the UK below several global competitors for fund fee structures. Disclosing information on returns is a good way to illustrate its impact to clients.

From our research, when comparing the Sandringham IFA proposition and different investment models that are restricted and vertically integrated advice models, we have found that, based on collective client assets of £20 million, there could be an additional annual cost to your clients of £120,000 per annum by using these restricted vertically integrated advice models.

This all goes hand in hand with adviser responsibilities under PROD and keeping the client at the heart of the decision-making process. Transparency is important, value is essential, fees need to be competitive and consistency disclosed, as investors adapt to the extra information being imparted.

From a regulatory perspective, Charles Randell also urged: “We’re also extending the Senior Managers Regime to make you all accountable for what your firms deliver. I urge you to embrace this and the focus it brings on responsibilities, resilience and results, as the banking industry has done”.

Sandringham has all bases covered

At Sandringham, we’re confident that Precision, our commitment to you and you clients:

• Drives client costs down, making no commercial gain from investment solutions, platforms or product providers
• Allows advising Partners to decide upon the appropriate value-based client charging
• Provides absolute client focused and unrestricted outcomes
• Respects the value of the adviser/client relationship, recognising adviser client ownership