Knowing the Price of Everything (But the Value of Nothing?)
Just why is the cost of authorised financial advice now out of most people`s reach? It hasn`t always been this way. A few short years ago when I entered the industry (alright, Kung Fu Fighting was top of the charts at the time), financial consumers could take their pick of several hundred thousand “experts” to attend to their every life assurance and investment need.
Most things functioned perfectly; customers were happy; insurance agents were friendly and attentive; a lot of people had “a policy” maturing to help in their later life. Why did somebody feel the need to come along and fix something that wasn`t broken?
Well, the short answer is it was broken and my last paragraph was, of course, arrant nonsense. Knowledge was asymmetric and, consequently, the public was invariably sold poor value products, driven by agents` commission. Top earnings for salesmen came from offloading Whole of Life policies, which were designed to pay out on death, but were often sold as medium-term savings products with poor surrender values instead.
Something had to change, and it did.
A series of mis-selling scandals from the 1980`s onwards (mortgage endowments, opting out of company schemes in favour of personal pensions, PPI, etc.) provoked regulatory intervention that has shrunk practitioner numbers to around only 25,000. An increasingly powerful regulator (the FCA), backed up by statute, can now investigate, fine and ban advisers who are either unethical, inept – or both.
As a result, there is now just one authorised adviser for every 2,000 people in the UK.
The good news is that those who are left are, in the main, very well qualified. The bad news is that their scarcity has come at a price – normally starting at around £150 per hour.
Little wonder that nine out of ten Brits are no longer seeking financial advice.
So, are financial advisers just plain greedy? That`s one explanation, but there are other factors which have priced advice beyond the means of the ordinary person in the street.
There can be no doubt that intervention from a strong regulator was necessary, but actions can have unintended consequences. For instance, it`s been estimated that an adviser must now employ 124 pages of regulatory-driven paper just so a client can set up a £20,000 ISA – yet only a third of a page of A4 is required if someone wants to borrow £20,000*?
Unintended or not, this serves to promote a borrowing, not a savings culture.
Nor is this regime likely to change any time soon. This year alone has seen the introduction of the General Data Protection Regulation, the Insurance Distribution Directive and something from the EU that is snappily known as MiFID II. All you need to know about MiFID II is that, because of its additional impositions, any regulated advice process will have to be extended by two hours per client per year.
Who ultimately pays? – well, you do, should you ever feel the need for authorised advice.
We are where we are, and it is no use moaning about excessive regulation. The fact remains that over 11 million UK citizens can no longer afford to access professional advice, and this is unlikely to change in the foreseeable future.
Many have simply adopted a d-i-y approach to financial planning. While commendable, the old adage, “you don`t know what you don`t know” comes to mind, and mistakes or ignorance can be expensive. Over-confidence is a classic human trait when it comes to matters financial – or, come to think of it, any matter (80% of drivers think they are better than the average!).
What`s more, while many investors can pat themselves on the back for decent market returns over recent years, events of the last few months may have caused even the most self-assured to become apprehensive.
So, what`s the answer? It may not be what you want to hear but, if you`re serious about putting a plan together, you are going to have to get more involved in the process. There is nothing mystical about the composition of a financial plan and you can do much of the preparatory work yourself if you are given the right tools to work with.
Who better to determine your cash flow and personal finances than you? If you need to have a word with a financial coach to sense-test what you are doing, then so be it. Just remember, every hour that you choose to invest in this process is probably going to save you at least £150 per hour.
Do more yourself!
*Source: Garry Heath of Libertatem
