Are Advisers charging “Picasso prices for painting by numbers”?

There was a great article in this weekends FT, written by my friend, Jason Butler.

The headline read ‘You Need A Financial Plan, Not an Expensive Portfolio’

If you have an FT account you can read the full article here: https://t.co/REsx6v2iXy

Otherwise, here’s an overview…

This article is just another example of how the leading consumer financial press – aimed at the higher net worth client – are starting to latch on to the subject of fees. The focus on fees charged by Advisers is only going to get worse (or better, depending on your point of view) over the next few years.

The article states:

“The majority of financial advisers and private banks talk a good story about providing financial planning. In reality they are primarily interested in managing an investment portfolio in return for charging a fee calculated as a percentage of the portfolio value. 

But what if you wish to invest in a second property, art or wine? What if the best advice is to hold all your capital in cash and National Savings products – or spend it, or give it all away?”

It said: “There are some decent financial planning firms that provide comprehensive financial planning. But many have an inherent conflict of interest, because they are wedded to the percentage of assets charging model, which causes adviser and client to focus on investment, when strategic financial planning is where all the real value is derived.” 

Furthermore, it states: “There can also be significant cross-subsidy of smaller clients by larger ones. For example, an investor with £1m invested can pay between 5-10 times more than a similar client with £100,000 invested, for broadly the same service. 

Investment management, tax wrappers and life insurance products are fast becoming price-driven commodities. While most people really need a dynamic personal financial plan which will help them improve their financial outcomes, most are just getting an expensive commoditised portfolio management service. Or as someone once said, people are paying the price of a Picasso for painting by numbers.”

This message came across loud and clear at last year’s BACK2Y:

The article states: “This is not always the case: a small but growing number of financial planning firms are now ditching the traditional model in favour of a flat rate, fixed price annual planning and advice fee. 

Capital Asset Management, a firm of chartered financial planners based in London, last year completed the conversion of all its clients to fixed annual fees for financial planning and investment management. Alan Smith, chief executive, says: “Gifting or spending their money can be a very sensible strategy for many clients and yet the percentage [of assets] model means that advisers may be reluctant to make such recommendations as their fee income would reduce. That is a fatal flaw in the model.

For those of you interested, Alan, a member of Inspiring Advisers, spoke in detail on this subject at the second BACK2Y Conference. He explained why and how his firm had made the change – and how this can be immensely profitable.

Remember, flat fees can be – and should be – highly profitable IF you deliver REAL benefits.

You can see Alan’s full presentation here: (There’s no charge. It’s well worth watching).

Here’s the key: The value is in PROPER financial planning.

This is where Advisers can help clients to really understand where they are heading financially. This is where we can give clients permission to really live: to do more, to be more, to give more. This is where Advisers can really matter in the lives of their clients – to help them live a life well lived.

With the rise and rise of Robo Advice offerings – and with the success of the likes of Nutmeg – not to mention Hargreaves Lansdown, the threat facing investment focussed Advisers is very real. Ignore at your peril.

Disgusting…

The recent publication of the so called ‘Top 100 Advisers’ by New Model Adviser had, to my mind, a disgusting feel to it. It was all about the money. Measured by assets under management. And ‘profit’ of all those concerned. Many were portrayed as Planners, where in fact most seem to be just ‘asset gatherers’. In fact some Advisers – no doubt influenced by New Model Adviser – spoke about the assets as if they were theirs, not their clients!

There was little or no reference to CLIENT OUTCOMES. There was no reference to what’s in it for the client.  (Just wait till the consumer financial press start to get a hold of the information contained in reports like the ‘Top 100 Adviser’ lists. It’s going to happen.)

It’s all gone a bit mad. But then, that’s the Financial Services industry for you. It doesn’t care about the client. It only cares about the money.

The old ‘Industry’ habits will be hard to break. But they need to break. Or they will break the firms who stick to these outdated ways of thinking.

As clients start to wake up to what they are paying in fees, as they will – particularly when their investments are falling or have fallen in value – these ‘asset gatherers’ will start to see those assets walk out of the door. Those advisers delivering meaningful outcomes for clients through the consistent delivery of proper financial planning will be the ones who attract those clients.

Client to new Adviser: “You mean you’ll do ALL THIS for me and it won’t cost me a penny more than I’m paying my existing ‘new model’ adviser?”

New Adviser: “Absolutely!”

Client: “Where do I sign?!”

Delivering PROPER financial planning is where you earn your stripes, and your fees. Most Advisers aren’t doing this. And this is an incredible opportunity for those few that do.

So, if you are interested in avoiding the biggest problem facing most Advisers today – particularly those who are charging “Picasso prices for painting by numbers” – do yourself a favour: grab yourself a seat at BACK2Y – the Lifestyle Financial Planning Conference.

BACK2Y – The Lifestyle Financial Planning Conference is THE Conference for Advisers who wish to be at the forefront of the financial planning profession in the years ahead by delivering a truly client focused service. One that delivers tangible benefits to clients and so GUARANTEES that you get well paid.

To book your ticket to this years event, go here: www.BACK2Y.co.uk

To check out Alan Smith talking about fees, go here:  https://inspiringmoney.leadpages.co/back2y2015-alan-smith-presentation/

If you want to miss out the part where he reveals how I got his lovely wife pregnant, then just start the video at the 13 minute point! 🙂

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7 thoughts on “Are Advisers charging “Picasso prices for painting by numbers”?

  • Paul,
    I am sure that whatever you are selling would have more appeal if you simply focussed on whatever it is rather than slagging off virtually the entire industry.
    So boring if you have to knock others to promote yourself.

    Reply
  • Hi Phil.

    The ‘Industry’ does need slagging off.

    You’re probably right though. It does seem, sometimes, that I make it hard for myself.

    But, in marketing – as with clients – you have to repel the ones you don’t want, in order to attract the ones you do.

    BACK2Y is not for Advisers who sees themselves as part of ‘the Industry’. It’s for Advisers who see themselves as part of a Profession. There’s a big difference.

    Reply
  • Well I have looked long and hard Paul and other than some people needing to massage their egos I see no difference at all.

    Fascinated to know how you came to your conclusion that we need slagging off.

    You can call yourself whatever takes your fancy but it will not improve or negate what you do.

    In all walks of life people behave differently no matter what they call themselves and there is usually a mix of good and bad in everything.

    Incidentally each and every segment of our industry has always been quite happy to work in an industry and given the numbers of hugely successful people within it, I see no reason not to be one of them although I confess I have no interest in selling them anything.

    I always assumed that you worked to attract what you sought in life and left what you don’t want alone.

    Reply
  • Hi Paul
    I’m wondering where Jason got his data from.
    Jason refers to a “majority” of financial advisers, and I cant imagine that he would say something like that in the national press without something to back up his assertion. There must be some data confirming that over 50% of advisers are doing what he says.
    Do you know if the 50%+ who “are primarily interested in managing an investment portfolio in return for charging a fee calculated as a percentage of the portfolio value” are 50%+ by number of individuals advising or number of firms?
    Could you point me in the direction of the statistics behind Jason’s comments please?

    Reply
  • Hi Phil (Wise)
    I would have thought it was nearer 90% than 51% who “are ‘primarily’ interested in managing an investment portfolio in return for charging a fee calculated as a percentage of the portfolio value” but that’s just my opinion based on the last 8 years spent banging my head against a wall.
    I don’t know what proof Jason has or where he got it from. But I’m guessing he’s got more ‘proof’ than most journalists/commentators on the subject. I’ll ping him a tweet and ask him to add to this post. But I think the use of the word ‘majority’ is pretty safe.
    However, would you like to suggest that the majority of Financial Advisers and Private Banks ARE doing comprehensive (proper) financial planning, in return for their 1%, including MEANINGFUL cashflow modelling with each and every client? Or even ‘some’ clients?
    I’ve always said 3% + 1%pa is a rip off for investment advice. As is 2+1 or 1+1.
    But for comprehensive, meaningful, life changing financial planning, it’s too cheap.
    In my view it doesn’t matter how you are paid, so long as it’s transparent, disclosed and agreed. What matters is what you deliver in return for those fees. Hence my post.

    Reply
  • Hi Paul
    Like most people, I find the press is going out of its way to lose its credibility. It shouldnt be me who is asking this question, it should be the FT (before they publish). It would be a lot more accurate to say that Jason “thinks that the majority….” rather than allowing him to claim that he has knowledge he doesnt have.
    Jason has a good point and he doesnt need to make stuff up to get it across.
    I’ve got no idea what the majority of financial advisers are doing. I could tell you what I think that most of those that I know are doing (the best they can for their clients, unless they are working for one of the big, restricted firms); but I dont know have a clue what people in Scotland (or even East Sussex for that matter) are up to.
    I agree with you on the point of services and fees. I havent charged a percentage fee for initial advice for at least five years, and I’ve offered a flat fee standing order option for longer than that. A lot of clients like the flat fee and have chosen it. You do get problems with flat fees; whilst it is often appropriate for clients to pay you directly, from their own current account, it can make sense, from a tax perspective, for our fees to be deducted from clients pensions. There are still a lot of pension companies out there who dont allow clients to pay us with their money, and that can mean you have to compromise (either by paying more tax by paying us directly, or by opting for a percentage equivalent).

    I suspect I’m not the only adviser who is quietly getting on with things like charging flat fees; some people would do well to remember that feeling you had at school when a supply teacher taught a lesson which your normal teacher had done the week before and you already knew the answers to the questions he was asking?

    Reply
  • I don’t have recent figures to hand but I’ve seen a number of surveys on the % of assets point and in every one I saw the number over advisers charging a % of assets for ongoing services was over 90%, most just after RDR were over 95%. I suspect its come down over the last 12 months but ‘majority’ is a very safe term to use. Looking at the current market performance I also suspect more might head in this direction right now for their own benefit rather than their clients…

    Reply

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