On the first day of the Open I was reminded just how different a golf course can be given the variables that apply. The principal one being weather.
In our sector the number of permutations seems to be limitless, the RDR was a key game changer and the focus remains on charges and will do for some time.
When CP121 was published the differentiation required for independence was the inclusion of a fee-only option for clients or what has since morphed into adviser charging. The idea behind this was to eliminate bias. I personally don’t buy this theory – those that do may also believe the Miss World contestants who seek to solve world hunger in the year of their reign.
We now have the man at the top of the FCA who questions the connection between amounts invested and fees charged. Now many have rushed to the assumption that this is aimed just at advisers, given that nine out of 10 seem to rely on adviser charging.
I think it is quite wrong. If fees based are on value is wrong for the adviser then the fund manager needs to have a rethink too. That’s not to say I agree that fees on value is wrong but I don’t see how you can charge a fee that does not decrease once the value passes a certain point.
It is also important that we have the discussion in context. All too often the press cite the charges using £100,000 as the amount invested (journalists have made some real howlers in percentages in the PF press hence their wish to use an easy base number!) this then exaggerates the position as the mode amount is closer to £45,000 when we researched it a couple of years ago.
What Mr Wheatley omitted to discuss was undercharging i.e. those charging 0.5 per cent trail on a drawdown contract where the amount invested is sub £150,000. On those numbers the trail is insufficient to do the job required i.e. or reassessing suitability for drawdown on an annual basis.
This applies to old and new cases. In some that we have been involved with we have suggested that drawdown is no longer the correct option, in others the fund mix was the issue.
I never quite got the clamour for 120 per cent. In my opinion if you need the income that equates to 120 per cent of GAD then drawdown is not the one for you. A combination of products can also work but that adds cost to the analyses but pre-selection of solution is a short cut to later problems for client and adviser alike.
This leads neatly to the education of the public in things financial. I have said before that if finance becomes a second rate subject (in the way it is taught or selected) then we will go back and not forward.
The subject needs to be taught in a creative manner but I am not confident that will happen and so the burden of education will fall on advisers.
In the recent past, thinking advisers have taken to using risk questionnaires that require the client to think about risk yet we do so when their knowledge of things financial is all too often lightweight.
We now use a service for all retirement cases where the enhanced annuity form is completed by a professional nurse; their skill with sequential questions provides a degree of protection that pays for the fee many times over.
What we charge clients and how we educate them will remain hot topics for some time to come; those who adopt will dominate the “leader board” in the adviser open.
Robert Reid is managing director of Syndaxi Chartered Financial Planning