The elusive search for 'value for money'
About a year ago I wrote an article on ‘the true value of financial advice’. The debate remains firmly on the agenda for consumers and financial advisers alike so I thought it worthwhile revisiting some of the key figures:
- 28% of adults prefer the concept of face-to-face financial advice but only 8% are prepared to pay more than £100 an hour for such advice.
- One third of households with £100,000 to £150,000 of savings and investments said they would pay up to just £50 an hour for advice.
- One third said that they would not be prepared to pay anything.
- Only 7% of people in this wealth bracket were prepared to pay more than £100 per hour.
I also quoted an article that I had written in 2012:
- Clients would expect to pay an average of £38.90 an hour to use the services of a financial adviser.
- They would also expect a full financial review to last around four hours, i.e. £155.60 for a financial review. The same research suggested that advisers spend approximately 16 hours producing a client report, and if this was correct then the hourly rate would equate to £12.50!
- YouGov research at the same time suggested 63% of consumers who were not currently paying for advice would prefer to pay at a flat rate, rather than an hourly rate (12%) or a percentage (16%).
In this connection I was drawn to a recent headline: ‘Would you pay £184.58 an hour for financial advice?’ and was interested to see that this is now a good estimate of the average hourly rate.
So where are we today? Well the subject of what advisers charge and the elusive search for ‘value for money’ is certainly a hot topic. We are in the middle of the Financial Advice Market Review (albeit without a timetable for completion and seemingly lacking much consumer input) and the FCA recently published its ‘Sector Views 2017’ report. This contained a few good pointers on advice, including the suitability and awareness of advice. However, the FCA also expressed concern that consumers ‘buying’ financial advice might not be getting ‘value for money’.
What is and how do you measure ‘value for money’ for an intangible product such as financial advice? If people can shop around and change adviser but do not, is that not evidence of a satisfactory consumer relationship? Rather than focus too much on the part of the market that works, let’s make sure that we set our sights more widely.
I often point friends in the direction of financial advice – many have little idea what a financial adviser can actually do for them or how much they can expect to pay. Indeed for many financial plans the success/value will be in a hassle-free retirement with money to spend/pass on as appropriate.
For me the focus must be on the transparency of these costs and building awareness of the financial benefits that advice can bring. Perhaps a move away from percentage charges would assist.
I do, however, accept that some consumers may not be able to afford such rates and, for me, this is where further regulatory work should focus. ‘Robo guidance’ (I hesitate to use the word ‘robo advice’ for what is surely just investment in line with an algorithim with some guidance attached) might assist some people, as will more nuanced information/guidance at the right time and perhaps with a few nudges! It will be interesting to see how many financial advisers decide to offer some kind of robo service and whether there really is enough demand out there to warrant it.
Our financial lives are becoming more and more complex and the financial risks are gradually being transferred to us as individuals. The value of good financial planning will certainly increase but let’s maintain the good start that we have.