So that’s me back after a dalliance with the UK’s way of dealing with people who aren’t alive any more – initial skirmishes broadly successful but we haven’t even got to the IHT stuff yet. Thanks once again to those of you who sent best wishes and especially to those who stuck a fiver in the pot for the MS appeal in Mum’s name – we’ve done well and it’s still not too late to chip in.
I’ve stayed away from industry stuff as much as possible over the last few weeks; reviewing things I see that the most exciting news is that vowels are no longer popular in financial srvcs. There have been many fine jokes made about this already, so I’ll just limit myself to saying that when we get to the fluffy end of things, if a rebrand or a visual identity or a name seems miles away from where you’d think it would be, the trick isn’t to ask “what?”. It’s to ask “who?”. Odds on the target was never you in the first place.
Talking of targets, an interesting thing happened to me this week and I thought I’d tell you about it. See what you make of this.
A friend of mine got in touch to have a look at something his son – a 20-year old army lad – had just been recommended by AN Other network adviser and about which he was concerned.
The young man in question has £200pm to save into an ISA over and above the £200pm he’s doing into a H2BISA already. Well done him. All aiming for a house purchase deposit in five years’ time or so.
First question – how many of you would advise this client vs quietly suggesting to him that there are several fine D2C websites through which he could get started?
In this case, the adviser cracked on. There was a phone session, a 10-question risk profile was done (‘adventurous’) and a recommendation came out that since our man’s budget was £200 a month to save into an ISA, that…he should save £200pm into an ISA. The venue was…doesn’t matter, but it was 0.35%, and the fund solution was a vertically integrated adventurous multi-asset job with an OCF of 0.75% or so. The ongoing adviser charge was 1%, giving a total cost of ownership of about 2.1%.
Interestingly, the suitability letter included the phrase “this is the lowest cost way to invest” without qualification about restricted advice, which should come with a trigger warning for any compliance bods reading.
Second question – is this OK given the modest amounts invested, or too much on general principle?
Of course, 1% of £2,400 in year one doesn’t pay for much, so the adviser also levied a £600 initial advice charge; a capital-unit stylee 25% of the first year’s investment. This would be paid off over 48 months at £12.50pm. So the first year’s income to the adviser is one quarter of that £600 plus probably £12, assuming the average balance in year one is £1,200. That’s £162, which still doesn’t pay for much.
Third question – are we fine with 25% of first year’s premium for regulars? Are we still fine when the investment time horizon is five years?
On the one hand, then, we’ve got a pretty chunky charge load on a young client’s basic accumulation portfolio – 25% plus 2.1% a year. Even though this was a doddle of a case, there’s still work involved.
On the other, if the young chap does need or want advice, why should the firm do it at a loss? Maybe it costs £600 plus 1% to do it; maybe not – but business is business.
I have no idea of the economics of the firm in question, though I do know a bit more about the network. I also know that the young chap is fortunate in having a financially literate parent who had already done the work in getting him to commit to saving for his future, to the point at which the adviser really just had to aim his weapon into the fish-laden barrel and pull the trigger (and also that said parent has a mate who knows how to read a key facts document and a suitability letter).
I mention all this because (to me at least) it’s an interesting illustration of where two different world-views meet. This all seems like a lot for a basic case, and of course we haven’t even got into the additional margin clip on the VI platform and multi-asset proposition (not that the adviser sees any of that). But advice isn’t cheap to give, and advice firms aren’t charities.
It seems to me that an inescapable conclusion is that the advice regime as it stands is not fit for purpose for situations such as these. We can welcome online or remote advice propositions into the sector, but in a risk-based world surely there must be a way through where clients like this can get good, basic advice and the firm isn’t forced to put on a mask.
I won’t tell you how the story ended, but I will tell you that the dad is from Yorkshire and you can probably fill in the blanks from there.
- Arriving just in time for the Update, that’s the Nucleus / James Hay deal all done bar the regulatory shouting. 92% approval rating is nearly as good as Mark Locke gets for his singing.
- Some big news from us, if you’ll allow – this week we welcome Natalie Holt to the lang cat crew. Natalie joins us from Nucleus (sorry everyone at Nucleus) and of course was editor of Money Marketing before that. She’ll be whipping our content and so on into shape, and will no doubt have some words to say about rambling Updates. We’re privileged to have the chance to work with her, and I hope you’ll welcome her if you get the chance.
- Talking of welcoming, we do just that to Ola Abdul of Fundment on HomeGames this week. You don’t know Fundment as well as you should, probably, and you can put that right by being here at 12.30pm or on our YouTube channel
- Speaking of guidance vs advice, this is interesting for potential drawdowners.
- Speaking of masks, Robinhood has less time for the Sage of Omaha than you might think. We won’t see that quote on some *****ng picture of a wee plant growing on adviser websites…
- And your music choice this week? I had options, but Amazonia from the mighty Gojira won out. Now, I’m going to ask a little bit of you here. This is heavy music, but it has a brain and a heart and is also supporting the Amazonia fundraising initiative. And it rips. Five and a half minutes of a French band with a Japanese name singing in English to benefit Brazilian charities – what more could you ask? Do watch the video as well. You won’t regret it.
See you next week