I am one of the few people in financial services who pays for advice. It gives me an advantage as I am able to speak as a customer.
Whatever complaints might be voiced about the cost of advice and investing, it is still probably cheaper and more useful than paying for market research.
Costly and confusing
I think I am a typical client, despite my job.
I will always be bored by suitability reports. You can put infographics, a poem and a £50 note in the middle of it and I still would not read it. I would rather it was short and cheap than ‘engaging’, whatever that means.
I do not understand any of the pension illustrations that are posted out to me. I do not believe anyone does, and I do not understand why they are all in a different format. I suspect this confusion costs me more money, somehow.
I like playing around with my cashflow model. I understand the limitations and honestly could not care less which system was used. My main observation, based on my many conversations with advisers who are not my own, is that there is a lot of information and disclosure about the assumptions that go into a cashflow model. Yet there is not much detail on what I can do to influence it.
Making a difference
The main reason I like playing with my cashflow is I like to have a goal, something to aim for, even if it is a bit of a game. Most people who have run a business have a similar trait, by all accounts. I set complete financial independence, with no earned income, as a future goal.
Understanding how interest rates, growth assumptions for different assets, and changes in tax rules will affect my goal is more useful to my adviser than me. I know it is important but it is not something I can do much about. I do, however, see pages and pages of information on these assumptions issued to clients in plans and reports.
What I hardly ever see is information about what a client can do to make the plan go quicker, and what really does not make a difference. When I looked at the sensitivities around my own financial plan I was surprised at what the sensitivities were. That was the single biggest factor in prompting action.
Investing my bonus each year made far less of a difference than I expected. Earning (and working) a little less but avoiding drawing on capital had a far bigger effect than I expected. Extending my wife’s retirement age had the most surprising effect, and prompted the most ill-advised celebration.
I wonder, amid all the debate around the oft-questioned science of cashflow modelling and the nebulous subject of client emotions, if we forget to leave clients with a genuine sense of volition when it comes to their own finances.
Most people paying for financial advice are wealthy. Many will have made their money themselves, in part through luck, but also through action. They will have sat in board meetings and agreed budgets. They will have made difficult choices having reviewed the facts. Why is so little communicated about the levers they can pull on to bring their goals closer? Yet there is so much information about the macro-economic factors that neither they nor their adviser can influence.
‘Put more money in’ and ‘take more risk’ sound like self-serving clichés when someone with enough money to have several options has paid for a full financial plan. There are far more interesting and practical things that can be looked at as well.