The true value of financial advice

A headline caught my eye in the trade press the other day. Research from Boring Money found that whilst 28 per cent of adults prefer the concept of face-to-face financial advice, only 8% are prepared to pay more than £100 an hour for such advice.

In a bit more detail, a 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, a third said that they would not be prepared to pay anything, and just 7% of people in this wealth bracket were prepared to pay more than £100 per hour.

This amused me and made me revisit some old files.

In 2012, in the run-up to RDR, I wrote an article based on some similar research findings by Coredata. Their research found that clients would expect to pay an average of £38.90 an hour to use the services of a financial adviser, and would expect a full financial review to last around four hours, i.e. £155.60 for a financial review. At the time I worked for a provider who commissioned their own YouGov survey which concluded that consumers would be prepared to pay slightly more than £200 for a complete financial assessment.

According to the Coredata research, advisers spend approximately 16 hours producing a client report, and if this was correct then the hourly rate would equate to £12.50!

According to the YouGov research, 63% of consumers who were not currently paying for advice but were willing to do so would prefer to pay for financial advice at a flat rate, rather than paying an hourly rate (12%) or a percentage of the money invested (16%).

If we accept that the numbers are representative then we can at least say we are heading in the right direction - £38.90ph to £100ph in just four years.

So in 2016 things have not changed too much as we are still discussing how to charge and what level to charge at. We are fairly and squarely into the arguments about the advice gap and the affordability of financial advice. The Financial Advice Market review (FAMR) is underway and is looking at ways that financial advice can work better for consumers.

It was recently reported that the Pensions Minister said she would like to see financial advisers create a “fixed price package” of advice to provide a basic service which would be affordable under the Government’s proposed £500 ‘advice allowance’.

My first question would be about a review meeting and whether these also have an allowance?

In the end, however, we still come back to the question of cost and value and how do we get consumers to value the advice given to them by a financial adviser?

On one side of the coin there are professions such as the law and accountancy where the payment of fees at an annul rate seems to be much more readily accepted. The other side is probably estate agencies who generally will charge a percentage fee with little service to the actual seller.

Many of the advisers that I speak to tell me that they offer their services at a price and they have sufficient demand to keep them busy – in many cases they are not after an unlimited number of clients.

Others I know are trying to find a way to offer some sort of service for a reasonable rate to try and attract new converts. Undoubtedly, so-called ‘Robo’ advice could offer part of a solution if cost savings can be achieved. Financial advice can be complex and I think that sometimes we need to covey this fact to the outside world.

For me the real challenge is for our industry/profession to stand up and shout about the services that we can offer and the benefits that can be achieved. Perhaps this is a carefully planned protection plan that protects a young family in the event of an early death, perhaps it is a complicated tax planning issue that arises from a small business or, most likely, a carefully designed retirement plan.

I am very much a fan of what now seems to be termed ‘full financial planning’, and for the right clients, the benefits can be sufficient to justify the fees that are charged. However, I am also a big fan of being able to do transactional business where consumers can start off on the road towards a full financial planning service.

So, I look forward to the next piece of research, from whatever source it may be, showing an even greater convergence of what consumers are happy to pay and what advisers are charging!

Head of Platform Technical

Mike Morrison has worked in financial services for far too many years. In 1990 he joined Winterthur (now AXAWealth) as Technical Manager, playing an instrumental role in the development of their SIPP product and later their pioneering work on income drawdown.

Mike is an ex Chairman of AMPS (the Association of Member Directed Pension Schemes) and is on the Financial Planning Committee of the ICAEW. He is also an Associate of the Pensions Management Institute and the Chartered Insurance Institute, and he holds both an LLB and an LLM in European Law.

An accomplished speaker and writer on financial services matters, Mike is passionate about retirement and savings issues, and how we can better communicate these to a wider audience.