Speaking to ifa, Bowerman said the traditional mindset of financial advisers to help clients achieve investment returns and beat market benchmarks was “built on shifting sands” and does not reflect the new world order.
“The benchmark for advisers is no longer the S&P300 or equivalent index; it’s about what the client would have done with their money had they not been with an adviser,” he said.
“So in some ways the most valuable thing an adviser can do is to stop clients making dumb decisions – quick market timing, panic reactions – it’s about being a behavioural coach, where we think advisers can add a lot of ‘alpha’.
“However, this can also be a difficult thing to charge for, so getting that proposition right and explaining to people how that is valuable is one of the biggest challenges advisers face.”
Bowerman, who is head of market strategy and communications at Vanguard Investments and regularly conducts seminars with financial advisers, says the move to a more value-focused advice model is not solely regulation-driven.
“The best advisers were moving to fee-for-service regardless of FOFA, it was happening as an industry trend anyway,” he said. “It’s been happening in the US without FOFA.”
Research indicates clients are now less demanding of investment selection advice and want broader decision-making and financial goal assistance, Bowerman said.
“Eighty per cent of the value-add to clients centres on asset allocation, estate planning, insurance needs, risk profiling – the actual needs of the client – not the investment selection, which is about 20 per cent of the value.”
Sue. So true. Clients have no trouble paying for advice and want to be advised. Could go on forever on this subject. Communication and working with clients to achieve outcomes is the basis. Those who hide behind commissions have a limited “lifespan”.
Robin is absolutely right…and further than keeping clients from making dumb investment decisions, great advice also stops them making dumb decisions that result in paying more tax than they should – and leaving their families more exposed than they should, and leaving their savings and budgeting too late…I could go on.
We can all educate consumers so they know just how valuable advice is – so Neil, people WILL seek advice, and be prepared to pay for it! Many already do today, and those who balk at a fee can be re-educated when they understand the true value of advice.
The problem I see with fee for service is some clients will not seek advice as they will have to pay for that service or every time the speak to their adviser they will pay. Some people just don’t like paying and therefore will not seek advice when they should.
Second the benchmark for the advisers has always been would the clients have been better off to leave it where it was and this is a lot of the time a term deposits. The fund managers need to change the way they benchmark to indexes as the clients don’t give care that the fund manager outperformed the index by 3% when the index lost 20% all the client see is that they lost 17% of their money
yes the best advisers have moved to fee for service and have been absolutely set up for a hospital pass from the unions and advisers with small client bases and tied up in red tape. this is just a bad bad govt, full of bad bad people, with bad bad policy. Wish they would leave like a stale smell that just hangs around