In this, in her latest blog for IFA Magazine, Katie Brinsden (pictured), Managing Director at the national, directly- authorised IFA, Truly Independent, delves into another yet one of those topics she feels so passionate about.
This time, Katie serves up a really honest assessment from the coal face of what financial advice really is all about – and why many advisers are guilty of overservicing. In the following blog, Katie eloquently explains why such overservicing benefits neither clients nor advisers. And is in so many cases, a real waste of time and money. We think it’ll strike a chord – and who knows, it might just make you think about some of your own clients and the level of service you’re delivering to them.
What is the main purpose of financial advice? This is not a trick question! Let me tell you what I believe the answer is routinely assumed to be and what I believe it ought to be in the vast majority of cases.
At least in my experience, many advisers think their job is to start with a reasonable amount of money and make it bigger. Naturally, there are numerous instances in which this approach might be apt.
For a huge number of clients, though, this is not the priority. As tempting as the notion might be, they are not focused on generating a spectacular surplus. They are more interested in making up a worrying shortfall.
That means they are unlikely to be fascinated by portfolio construction, performance data and the intricacies of diversification. They are even more unlikely to care about the latest movers and shakers in the sphere of fund management.
What matters to them, on the whole, is understanding what they are worth and whether it is enough. Ultimately, they need help in achieving financial security. They just want to learn how to save and how to build for a better future.
This tells us two things. The first is that a “one size fits all” model of advice may prove inherently flawed. The second is that some advisers might be needlessly overservicing clients who have little or no need of a comparatively sophisticated, personalised offering.
A suitable service level
We can illustrate these arguments by envisioning the financial journey of a fictional client. Imagine, for example, an office worker, Miss A, who first seeks advice in her mid-20s.
Miss A has no savings of note. She also has no dependents. She feels she can set aside a few hundred pounds a month, and a basic review of her financial position indicates she is right.
There is no merit in overwhelming Miss A with an array of bells-and-whistles services at this point. She will not benefit from a sit-down meeting every few months or being presented with a pile of snazzy fund prospectuses to sift through.
All she really requires is a grasp of the fundamental importance of steadily accumulating wealth. She needs sensible targets, and she needs to recognise and value the little steps she can take towards reaching them.
Technology can aid her in this respect. For example, she can use an app to monitor her inflows and outflows and to keep track of where she is and where she wants to be.
This shows how tech can often perform the “heavy lifting” in a client-adviser relationship. The result: lower fees for Miss A and more scope for her adviser to devote time to genuinely productive, useful work.
Adjusting to a client’s needs
Fast-forward a few years and we find Miss A has become Mrs A. She has also earned a rapid-fire series of promotions and has been rewarded with a far higher wage.
This means she is able to augment her savings and adjust her targets and milestones. At the same time, though, she has a lot more to think about – insurance, income protection and so on.
Now it might make sense to engage in more frequent dialogue, including an annual review. While tech still has a sizeable role to play, the client-adviser relationship can go up a gear – as can the fees.
And what if we whizz forward another decade? Mrs A has a daughter and her own business. Her responsibilities are growing. She needs to consider not just her family but a handful of employees.
She is giving much more thought to pensions. She is reinvesting more regularly and optimising her various holdings. Now she should care about portfolios, performance and all the rest.
There could soon come a point when a full range of professional services is necessary. Mrs A will rightly expect a great deal more from her adviser than she did all those years previously – and the fees she is charged will once again reflect this shift.
A model that puts clients and advisers alike first
Broadly speaking, this final level of service is suitable for 10% of Truly Independent’s clients. The service Mrs A received once she had her own company is appropriate for around a third.
Crucially, the service made available when advice was originally sought meets the needs of all our remaining clients. This equates to approximately 60% of the people who trust us to guide their financial decisions.
All this clearly underlines the well-worn axiom that every client has unique needs. Every adviser is well aware of this fact, yet services and fees are not always adjusted to reflect it.
Just as significantly, though, we need to acknowledge that advisers who consistently overservice are not just wasting clients’ money. They are also wasting their own time, resources and energy.
This goes a long way towards explaining why so many members of the adviser community end up buried under a mountain of reviews and practically incapable of taking on new clients. The problem lies in them providing a needlessly elevated level of service for their existing clients.
There is nothing wrong with “going the extra mile”, of course. Sometimes it is hugely commendable. But foisting an unduly extravagant “one size fits all” model on everyone – and charging accordingly – represents a very different approach and does no-one any favours.
Katie Brinsden is Managing Director of Truly Independent.
