Is it about you (or about us)?

Is it about you (or about us)?

Read Time: 5 minutes

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Inevitably in this profession, from time to time I come across advice from other advisers and it is hard to resist the temptation to pass a critical eye over it to see what solutions other people are recommending.  The task is made easier by the fact that in most cases, the advice is or was being given to a client of ours, which means that we already know a fair amount about them.  Having a clear idea of their goals and attitudes as well as details of hard facts such as their financial circumstances is essential when assessing whether a piece of advice looks as though it is good, bad or indifferent.

One of the things that I resolved to do early in my career was to spend my time hanging about with people who were smarter than me (which some may suggest that this is quite a low bar).  I figured that I was likely to learn far more doing this than listening to people who knew less than I did.  So far, that approach has worked pretty well and exposed me to the thoughts and ideas of a remarkable selection of people from some of the best financial planning firms around the world.

However, the unintended outcome of this is that it has probably skewed my impression of the quality of advice that is out there.  If the only people you know are well qualified (and have been since long before the regulator decided to ramp up the requirements), professional and focused on improving their clients’ lives rather than their own, then that will become normal; the base level at which you expect everyone to operate.

Yet as a succession of failures and examples of poor advice that the media highlights show, even if it is normal, it is not universal.  Fortunately we don’t encounter many examples of terrible advice although as we act for a relatively small number of clients (certainly compared to many firms), that may be partly a function of just the size of the universe that we see.

What we do come across occasionally though is a proposal from another business which reveals a lot about the approach that they take when faced with a similar situation to us.  It can also provide some interesting insights into the way the firm itself thinks in terms of its philosophy.

We recently carried out a regular progress meeting (over remote video link, inevitably) with some clients with whom we have worked for over a decade.  They recently sold a business and as a result, have had a significant boost to their cash balance to the extent that they could afford to leave it all in a bank account and would likely still have sufficient to last them their entire lives.

However, they feel that money should work harder than that, so after adding to their long term portfolio a couple of years ago but still holding substantially more cash than they wish, they asked their bank for a proposal for part of the excess.  The bank, like many, has opted to provide wealth management services via a third party, a large and well-established institution, rather than attempting to build such a business itself.  This week the client forwarded a copy of the proposal to us for our thoughts.

As might be expected, the proposal looks impressive.  It runs to 20 pages and although it was issued in PDF, no doubt a hard copy version would have been on decent paper.  The proposal consists of five sections (comprising an executive summary, details of the team which would be involved, the solution, tax efficiency and charges and next steps), with six annexes and rounded off with two pages of the usual disclaimers and regulatory disclosures.

Tax efficiency and charges (despite their importance to clients) cover less than a single page combined, while the annexes (curiously numbered 1, 3, 4, 5, 6 and 7 – not sure what happened to 2) actually make up more than half the total page count.  The entirety of this section is standard text that basically points out how great the firm is – its global spread, its investment research capability, its fund selection process and its other services (most of which are irrelevant to these clients but the information is there just the same).

The content that is specific to the clients (remember, this is about potentially investing a seven-figure portfolio) occupies half a page (the client’s requirements, albeit with several typographical errors), with a further half page describing the solution and slightly more than a further page showing an illustrative portfolio.  Intriguingly, this makes reference not to ‘your portfolio’ but to ‘your clients’ portfolios’, so maybe the author is unclear as to the recipient’s identity.  Maybe neither of the other two members of the team actually read it before it was sent.

At this point I could go on about the fact that the proposal appears not to comply with the MiFID II regulations introduced in 2018, in that it quotes costs in percentage rather than cash terms and makes no mention at all of transaction costs but that isn’t really my main concern (and I’m sure most clients would not even be aware of MiFID I, never mind the sequel).

No, what I found most interesting was the proportion of the document that was about the client compared to that which was about the firm.  In this instance, the former was 20% of the document and the latter 70%, the balance being the cover and content page.  This suggests to me the relative importance which the firm assigns to each party in the relationship and it doesn’t seem like the best split.

After all, there are lots of ways for someone to invest and not all of them involve taking advice.  In those instances, the investor selects one or more providers and products from the range of available offerings on the shelf.  It is up to the investor to determine their own objectives and to choose who is more likely to help them achieve them.  However, anyone who is prepared to hire someone to advise them, particularly on an ongoing rather than a one-off basis, should be expecting the adviser to focus on their goals and to come up with a solution which is customised to the specifics of the client.

The first step in this process is to gather some fairly detailed information about the client, information that will generally occupy more than half a page of A4 paper.  This information is not just the value of their house, their income etc. but about their goals, their attitudes and the extent of the risk that they are willing and able to take to achieve them.  This is essential information to collect, regardless of the solution, which is why financial planners spend most of the early meetings asking questions and finding out about their clients.  They don’t spend it talking about themselves and how great they are because, oddly enough, most people are much more interested in their own lives than the history of a firm with which they are considering doing business.

If they are that interested, they will read it on the firm’s website but whether the firm started in 1715 or 2015 is not necessarily going to make a huge difference to the client’s future experience of it.  If they aren’t, it’s just a waste of effort to tell them about it and a distraction from what really matters to a client – themselves.