You can take the investment adviser out of financial planning. And save over 10% on your investments after 5 years!
Financial advice is offered today, with the adviser tapping into your assets for fees. Some claim that they can deliver superior investment returns when compared to the market. Be wary of such claims. I don’t believe that a financial adviser can do that. They may tell you that they offer a wide range of other services that justify the fees they charge. I believe they can do that. In this blog, I try to break down what you are getting and what you can expect. The outcome I want for you is for you to get the best value for your hard-earned money.
“Most of the Time You Should Do Things for Yourself with the Right Support.”
The UK Financial Conduct Authority (FCA) says advisers charge an average of 2.4% of the amount invested for initial advice and 0.8% a year for ongoing advice (1.9% p.a. with an underlying product and portfolio charges factored in).
If you invested nothing with the adviser, would advice be free? I don’t think so.
What’s the alternative? Consider the following:
- Subscribed for Which? Money from £3.29 per month Subscribe to Which? – Your consumer champion. Cost over five years £355.50.
- Buy this how-to-invest book: How to fund the life you want from Amazon, Kindle edition £9.24 How to Fund the Life You Want: What everyone needs to know about savings, pensions and investments eBook : Powell, Robin, Hollow, Jonathan: Amazon.co.uk: Books
- Choose the top recommended best investment platform from Which? Money. Best and worst investment platforms and fund supermarkets – Which?
If you chose the top platform and a readymade portfolio from that platform, the product and portfolio charges combined are 0.37% p.a. (0.22% fund and 0.15% platform capped at £375 p.a.). Pick the fund that best fits your investment goal and attitude to risk. The provider monitors the fund to ensure it sticks to the original balance of shares and bonds.
|Request||Average cost saving over five years|
|Setting up a £20,000 Isa (total cost saved)||£1,724|
|Advice cost saved||£994.26 (£1,359 – £355.50 – £9.24)|
|Investment cost saved||£730 (1.1% advised – 0.15% platform – 0.22% fund = 0.73% p.a.)|
|Investing £100,000 (total cost saved)||£9,727|
|Advice cost saved||£6,077.26 (£6,442 – £355.50 – £9.24)|
|Investment cost saved||£3,650 (1.1% advised – 0.15% platform – 0.22% fund = 0.73% p.a.)|
|Consolidating three pension pots totalling £250,000 (total cost saved)||£23,025|
|Advice cost saved||£13,900.26 (£14,265 – £355.50 – £9.24)|
|Investment cost saved||£9,125 (1.1% advised – 0.15% platform (capped) – 0.22% fund = 0.73% p.a.)|
Our initial assumption is that you can invest your money with the proper support. Over five years, this can save between 9% and 10% of your life savings.
The financial adviser may tell you they do far more for you than wealth management. But here are three things:
- You can buy those additional services for a fixed fee.
- Not all advisers are delivering the additional services; see below.
- Interestingly, the additional services are not always regulated by the Financial Conduct Authority (or similar securities governing body, which varies by market).
Investment intermediation in the UK is regulated under s22 of the Financial Services & Markets Act. In the FCA Handbook, PERG 8.26.2-5 states that financial planning is not regulated unless given during or in preparation for a regulated activity.
You see, the FCA regulates distributors and manufacturers. British general investment advisers are subject to consumer protection regulations overseen by the Office of Fair Trading, as are other traders. And subject to the codes of conduct of their relevant professional body. In the UK financial services industry, there are over 70 professional bodies and trade associations monitoring the conduct of financial professionals.
Interestingly, additional protections are available to consumers under OFT regulations, which are unavailable when dealing with FCA-regulated companies. One such protection is the Private Right of Action for a consumer to take legal action against the adviser for a breach of regulations. So, it is not fair to say that the consumer is less well protected if the adviser is not on the FCA register. A ploy often used by FCA-regulated product sellers when a consumer says they are considering an advice-only financial planner.
What does a financial adviser do?
In July 2021, Spectrem Group conducted research with wealthy investors regarding what services they receive as part of their wealth management services and what services they would expect to receive as part of their wealth management services.
When Spectrem conducted this research, they found a significant gap between what was expected and what services were received. Investment management is the only service that was provided at nearly the level expected, with 95 per cent of wealthy investors expecting that service and 88 per cent receiving that service.
Ninety-six per cent of investors expected to receive financial planning as part of their wealth management services, yet only 70 per cent were receiving that service. Ninety-six per cent of investors also expect to receive wealth transfer advice, while less than a quarter of investors received those services. Trust services were another area where a vast gap existed between those that expected that service (94 per cent) and those who received that service (10 per cent). This research demonstrated that investors were looking for their financial adviser to provide these services through the wealth management process, despite very few investors receiving the service.
The financial planning in this study may not be financial planning as you and I know it. I would expect it to include lifetime cashflow planning and not simply be needs and shortfall analysis. Around 75% to 80% of financial advisers claim that lifetime cash flow planning is essential in the advice process; in reality, I think less than 20% use it with all clients.
What’s the best way to access advice-only financial planning?
I’ve put together Advice-only Financial Planner as a beta test to demonstrate what’s possible.
You can access a life planning pack for free by registering on the mailing list.
You can do your lifetime cashflow planning for just £6.99 per month; there’s a free 30-day trial.
You can join a peer support group for £49 per month, facilitated by me.
Or you can have a comprehensive financial plan if you are going through a significant life event requiring that you replan your favourite future, which includes general advice on all expected services above should you need it. The fixed fee for this service which includes 12 hours of Zoom meetings one-to-one with me, is £2,950, or £3,950 for couples.
The expectation when using an advice-only financial planner is that you either manage your investments or hire a wealth manager to do that part for you.
Mixing planning and general advice with intermediation muddy the waters between client and adviser.
I am describing a new future for financial planning. Where there is a wall between advice and product, it improves market integrity. More importantly, it saves you money. You know what you are paying for, and your return value is clear.
Is this the future for financial planning? You decide.
If you want to chat, email me at firstname.lastname@example.org.