Value for money is tricky. How do you define it? Can the provider offering the product or service define value, or is it always in the eye of the beholder?
This is all about to become much more important on 31 July when Consumer Duty comes into effect with its four outcomes, one of which is price and value.
Luckily for advisers, studies over the years have concluded very favourably on the value of financial advice. Those of us who work with advisers know advice offers huge benefits, but it’s nice to see it proven too.
For example, a Vanguard study estimated advisers can add more than 3% in net returns for their clients per year and Russell Investments found that figure to be 4.4%.
Elsewhere, the International Longevity Centre’s multi-year study found those who maintained an ongoing relationship with a financial adviser had pension wealth of 50% greater compared to those who took one-off advice.
So advisers, we know, materially help clients grow larger pots of savings and offer value well above the fees they charge.
Life events such as an inheritance, business sale or death will also often provide the “moment of truth” allowing advisers to quantify their value through tax saved, sensible financial planning and so on. But there are also non-quantifiable measures of a successful adviser-client relationship, too.
Intangible concepts like “empathy”, “peace of mind” and “understanding my life goals” featured highly in what clients value when we created our own white paper, The Insiders’ guide to the Value of Advice, a couple of years ago.
Advisers can quantify their value during difficult times but outside of these years the peace of mind they deliver to their clients, helping them to enjoy the good years, is arguably more valuable.
Helpfully, there are also studies on the value clients feel they receive. For example, the Lang Cat’s recent Advice Gap report showed 88% of people who receive ongoing advice believe they are getting value for money.
The difficulty when it comes to Consumer Duty is evidencing the valuable advice you give to your clients. Documenting your processes and client outcomes is absolutely central to the incoming regulation. It isn’t enough to simply ask your clients if they find value in the service they’re receiving, although it can be a useful part in evidencing it.
The Consumer Duty manufacturer rules require greater governance, monitoring of internal measures and evidencing of all the processes that culminate in the advice service being provided. And for advice firms who are building their own in-house model portfolios, these rules will also apply, effectively making them a product as well as service manufacturer.
Surveying clients and asking them for their opinions is all well and good and can be affirming for you and your team when you receive a very positive response in return, but Consumer Duty demands more.
Some firms might see this as an unnecessary regulatory burden, however the research mentioned above is proof that advice is more often than not a value-add service.
Consumer Duty isn’t about creating value – it’s already there. It’s about evidencing it and that has to be a good thing.
Overall, defining and quantifying the value of advice is still a hard nut to crack. For advice professionals, part of the value assessment will be about understanding the value that’s on offer from the companies you partner with, whether that’s in pounds and pence or the service offered.
Apart from that, it’s about demonstrating the difference financial planning makes at every step of the process. Doing it because of regulation can be seen as a hassle, but being able to evidence it to current and prospective clients is certainly a nice benefit of preparing for the Duty.
Ben Peele is managing director, UK, at PortfolioMetrix
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