I’ve just watched (twice) all eight minutes of this video along with 35 other views over the past two days.
Try it if you like, but I suspect that you will, like me , be counting down the minutes till you can go and do something less boring instead. (there’s a shorter version on the tweet below).
Financial advisers are obsessed with the value of their advice and Martin Bamford uses his eight minutes to tell us how using a financial adviser, which would typically cost you 1% of your advised wealth each year, could boost your wealth by 4%, making you 3% pa net richer.
This assumes a financial adviser becomes a “circuit-breaker’ to your bad behaviours, reduces your investment costs by switching to you lower cost funds (like Vanguard’s,) gets you into tax-advantaged accounts, rebalances your portfolio and gets you spending your money in a tax-effecient way.
All this can happen, but it assumes you can’t do this stuff yourself or get a robot to do it for you.
There are simpler and cheaper ways not to be daft with your money – like being patient and not panicking.
Rebalancing is a standard feature of most multi-asset funds and doesn’t need manual intervention.
The cost of “low-cost” IFA devised wealth solutions are way higher than the cost of using a workplace pension.
Apart from the highly taxed, there isn’t that much complexity in savings to warrant a wealth tax and in any event , tax advice is available to the wealthy from a variety of sources.
Martin is ill-advised to take on Paul Lewis on this, as his job is to help people do this stuff themselves.
It is of course a wealth multiplier. It multiplies your wealth by 0.99 or 0.98 or 0.95 or 0.9(I’m not going to tell you my charges) https://t.co/m18OrOmUCC
— Paul Lewis (@paullewismoney) November 1, 2019
As I’ve said on this blog before, the value add of wealth management is in the soft issues, the hand-holding and in the snob-value of having an adviser.
SJP have brilliant customer satisfaction ratings but I doubt that more than a tiny percentage of customers would point to Vanguards five measures of adviser alpha.
Two conflicts in intermediation
What Martin’s going on about is the Vanguard 3% value add formulation is to provide a mentoring service so you don’t screw up but do the sensible things in a timely way.
The cost of screwing up may be 3% but there is little evidence that an insurance policy of having a financial adviser in your ear, making sure you don’t self-harm, will stop you self-harming. Indeed there is plenty of evidence that the cost of this insurance will be harm enough to render your financial plans ineffective (Paul’s point).
The first conflict in intermediation is that it is an insurance most people can’t afford but which many take on – because they are petrified of what they don’t know.
What Paul Lewis tries to do , is to empower people to know how to behave, which obviates the need for advice. This is at the heart of the quarrel, Paul sees advisers as getting in the way of self help -Martin sees self-help as getting in the way of advisers.
The second conflict with intermediation is that intermediaries are the essential channel by which funds are distributed. This Vanguard and every other fund manager knows very well. Vanguard funds are principally distributed in the UK by financial advisers.
So Vanguard becomes the financial advisers friend because it eats the least amount of the adviser’s lunch. Advisers can quote the Vanguard narrative in eight minute videos (but sadly it’s only me and Paul watching).
Circular arguments that create more conflicts
The wonder of advisers is that they thrive on the chaos they create. They research ways to circumvent rules that lead to rules being complicated to foil advisory avoidance strategies.
Once these complexities become apparent, financial advisers can charge clients to circumvent the complexity that they created . Classic cases of this are the various pension tax rules surrounding the LTA , AA, MPAA, PIPS and all the other stuff you learn to be a pensions advisor.
None of this stuff would have been necessary if we had stuck with the simplification the Treasury offered us 13 years ago. The reason why pension tax is so complicated is almost entirely down to tax consultants and pension advisors finding loopholes.
The advisers who are bemoaning the complexity of the pension taxation system are dependent on that complexity to warrant their advice. The 3% value add that Vanguard promote as emanating from advisers is little more than repairing the damage advisers created in the first place.
I often hear arguments for the wealth tax (or contingent charging as it is often known) based on it “democratising advice”. The way this works is to convert people’s future income stream (pensions) into “wealth” which now needs the benefit of “adviser alpha”. I consider that the “circuit breaker” should be applied before money is transferred.
Little is made of the very obvious advantage of a pension in payment, that it does not need financial advice. Most people do not need advice democratised, most people don’t need advice.
The wealth tax is a vanity tax
Ironically, the people who pay the wealth tax don’t want advice democratised. They want exclusivity (one of the reasons that SJP got out of Port Talbot early on).
The vanity of the wealthy is such that they will dissipate their fortune paying flunkeys like wealth managers to console them about the difficulty of being wealthy.
I was approached by one such flunkey last week who told me that as a CEO I was “time poor” and could do with their mentoring.
The task of mentoring me would – I was told – be financed by as small charge imposed by the mentor on my financial assets. The flunkey went so far as to explain that his and my interests would be aligned as the wealthier I got, the more he would earn,
I was being suckered into thinking that because I was busy , I could not do the things that busy people do, like fill in my self-assessment or keep my money in my workplace pension.
I was to be released from these responsibilities to have my money managed in a DFM, my tax affairs catered for by an agent and my legal, social and conjugal affairs assigned to some kind of concierge service.
I do not have flunkies in my life and I told the person – who assumed I wanted to outsource my business affairs, that I was quite happy looking after myself.
The point of a wealth tax is to convince the wealthy that the best use of their wealth is to outsource its management. The outcome of that outsourcing will be the dissipation of the wealth. A fool and his money are soon parted – vanity is vulnerability of the mass affluent.
Wealth management is the most perfect form of wealth redistribution. The wealth management industry (including SJP) have created the perfect argument to rebuff the journalists of the Times and the Telegraph. They argue that this is no more than the politics of envy. Clients should rise above the angst of the 4th estate. This fluffs their clients up even more.
SJP are right, horrible oiks like James Conley, Ali Hussain and Paul Lewis aren’t to be found in the bar of the Hurlingham Club or at the polo,
The cost of advice
The kind of financial mentoring associated with wealth management offers temporary admission to these kind of clubs and events. It cannot and shouldn’t be justified as adviser alpha.
I have seen the doors of the club and sometimes stepped in. I subscribe to Groucho Marx’s position
Which is where I think Paul Lewis and I see eye to eye.
Since only 6% pay for advice surely the other 94% are better off already and have secured a well balanced financial life with the free guidance and well constructed easily understood tax regime all with an AgeWage score of 50 and an annuity topping up their state pension to the recently defined comfortable retirement level of £33,000 a year with the hope of a continued triple lock hiking the fund ceiling to £1,075,000
Job well done
Mind you the productivity of the UK might make this utopian situation more difficult to maintain beyond the next 5 weeks
I strongly believe that the value of an adviser has zero to do with investment advice, since they like everybody else breathing has not the first idea of what is happening tomorrow with asset values. Just like Thatcher’s gerrymandering policy of selling council houses for a song in the 1980s distorted house price values, so too Quantitative Easing has distorted asset class values for the last decade or more. There is simply no way of telling which asset classes will perform better tomorrow, and no way of telling which particular shares or companies or commodities will soar and which will plummet. The Royal London and Longevity Centre’s research seemed pretty well produced to me, and it showed quite clear statistical evidence that clients who had been advised were better off than those who made financial decisions independently. The value of an adviser is surely more to do with helping clients understand the need to match their financial decision making to their long term life goals. To save more if they want more money and choice later. To protect against the threat of death or serious illness. To put away 15 to 20 per cent of what they earn from an early age. To be a source of support and guidance so that when the stock market crashes they don’t crystallise an avoidable loss and stay invested. To stop them always buying at the top of the market. To not spend more than they earn. To help them learn to budget and stick to their budgets. To show them what the future might look like if they behave “badly” or “well” financially. To give people confidence and reassurance is also a vital part of the adviser’s role, when all their mates down the pub give them advice which will lead to long-term financial harm. Paul Lewis and the journo brigade have great intentions, but cannot help people make the crucial day to day decisions that might affect their financial wellbeing positively or negatively. A good financial adviser can be a vital source of support and can provide a balanced understanding of the client’s needs and wants. Trouble is, the FCA has created such a nightmare labyrinthine regulatory framework that the cost to the adviser of providing such advice means they instead go after high net worth clients and talk about investments. You can talk about the cost of any professional service. Actuaries charge for work that could be done by their computers and AI, and charge to communicate this information at the rate of £500 per hour plus. Barristers charge hundred of thousands of pounds for legal advice which sets the taxpayer back millions. Accountants charge through the roof and justify their charges by setting up possibly needless trusts and legal avoidance schemes. Don’t blame advisers for all the ills, we live in a world of litigation these days.
The price is not for the 30 minutes it took to give the advice but for the 40 years of learning and experience that made the 30 minutes possible and valuable
for goodness sake, this is not a p*****g contest!
We should be have a proper discussion about when and how advice is needed and the debated needs to be multi faceted, just like the people we are trying to look after and come up with a better joined up approach and a more balanced assessment. How many of our member’s would have actually understood even one quarter of the language being used in this chain – or any others on this subject.
Yes, i think various regulators have made it hard by stirring the pot without any real understanding of the consequences (or perhaps, are too focused on protecting their own credentials and “worthiness”) but it was ever thus and its our collective responsibility to improve knowledge and understanding despite that. And yes, i think some in IFA community can sometimes show a breath-taking arrogance and a very narrow view of life, and using an IFA under the current structure maybe a vanity project for some but that’s not a very balanced judgement and polarising views puts so many things at risk.