Tim Sargisson: Why is pricing such an issue for advisers?
As we enter a new decade Tim Sargisson urges advisers to take stock of their pricing to make sure what’s on offer is fair to both client and intermediary…
A Happy New Year and welcome to the next decade. It hardly seems credible that we are now 20 years into the new century, a time that has seen real progress for financial advisers and how we support our clients.
No room for complacency, because ever-present is the danger that, if we forget the past, we are condemned to repeat it.
Certainly, that was my sense as we left the last decade with the steady drip-drip of concerns over defined benefit (DB) transfers evoking memories of the early 1990s. Back then the mis-selling of personal pension plans was described by the TUC as “one of the greatest financial scandals of all time”.
An unprecedented example of mass mis-selling of financial products affecting approximately 1.5 to 2 million people, which resulted in substantial professional negligence litigation as well as a final compensation bill of some £11bn.
The price is right
Putting aside the concerns over the likely financial impact as well as the reputational damage to our profession over this new wave of DB transfers in this decade, another area where advisers really need to take stock is pricing.
This inelegant segue allows me to unashamedly plug Professional Adviser’s PA360 event at The Brewery in London’s Chiswell Street on 21 April, where for my part, I am chairing the panel discussion: Fair pricing in financial services.
One aspect of our discussion is the Financial Conduct Authority holding firms to account and establishing whether prices are representative and fair to the consumer. Of course, there is the other equally important side to this, which is advisers setting a price which is not just fair to the consumer but represents the right price for the job.
In crude terms, this means delivering a profit on every client for the work we do.
Only a few days into the new decade we saw two examples regarding this issue of ‘price’ impacting the adviser community. First, the announcement by independent advice firm Bancroft Wealth, offering advice for a fee of £500 per year regardless of portfolio size.
I have run various advice businesses over the years and experience tells me that there is no such thing as a ‘once size fits all’ approach to advice, where providing ‘advice’ tends to cost a lot more.
This is because the real nature of providing ‘advice’ is distinct from simply charging a flat fee to run a multi-asset portfolio, irrespective of the medium you deliver it over.
Second, the news that Robo-adviser Moola had gone bust. Hardly surprising when in the year to 31 December 2018 I heard it had a turnover of £3,768 and a loss of £967,552.
Marketing is hard and effective marketing is also expensive. Even then, clients are unlikely to invest anything but a cursory amount for robo-advice. It’s not just cursory but the curse that will derail most robo-advice offerings.
Three reasons why
But why does calculating the right ‘price’ pose such an issue for the advice profession?
Based on my experience of working with advisers I believe that there are three distinct reasons for this:
- Many firms still haven’t undertaken enough analysis to fully understand how much it costs to operate their business. For years, advisers have been ‘price-takers’ rather than ‘price-givers’. Seven years out from Retail Distribution Review (RDR) simply continuing with a redundant pricing structure handed down by product providers based on three plus a half or variations thereof.
- Some advisers still feel uncomfortable explaining fees to clients and so have continued with whatever fee they have historically charged. This sidesteps the need to discuss charging a more realistic fee with the client.
- Firms don’t believe they have improved their proposition sufficiently post-RDR and therefore don’t feel able to justify increasing fees. Even when it is supported by an increase in costs.
The good news is that robo-advice will continue to fail because, in truth, there is no such thing as robo-advice. It is a chimera, it is robo-process at best. Advice needs to be book-ended by human interaction.
Therefore advice delivered by humans presents a glorious opportunity as we move into the 2020s. However just ensure you know what to charge – or, if you are unsure – better to come and hear ideas debated and discussed at PA360 in April.
Published 20th January
