Kristen Paech reports on a service designed to help consumers tell if they’re getting value for money.
“If you have a positive experience, you might tell one person; if you have a negative experience you’ll tell 10.”
It may be an old cliché but when it comes to financial advice the saying holds water.
A financial adviser who saves a client $200,000 might be lucky enough to receive a few referrals from the happy customer, but an adviser who recommends doomed investments can guarantee their client will tell everyone they know.
Brett Walker, director of FSI Consulting, is hoping to save consumers a lot of time and misery by helping them to better understand the value in the advice they’re receiving from their planners.
He says most of the problems plaguing the financial planning industry boil down to a lack of clear explanation of conflicts of interest, exit costs and business models.
To counter this, Walker has launched ValueCheck, an independent benchmarking service that helps consumers make sense of their Statement of Advice (SOA).
For $275, people can send him their SOA and he’ll provide a written breakdown of the costs they are paying, the services being offered in return and a benchmark for them to compare that against.
“The service I’m offering is a way to introduce mums and dads to the nuts and bolts of making some sort of determination of value,” Walker says.
“No matter what’s going on in the world of disclosure, they seem to have trouble getting their heads around remuneration models and conflicts and just understanding those issues when they are trying to establish or maintain a trusted adviser relationship.”
Recent Roy Morgan research revealed a disturbing level of ignorance among consumers seeking financial advice.
The majority of those surveyed who used one of several major dealer groups to obtain superannuation advice had no idea their adviser was tied to an institution, the research firm’s July 2007 Superannuation Choice report found.
Some 58 per cent thought Garvan was independent of MLC/NAB, 52 per cent thought Hillross was independent of AMP and 41 per cent did not know Colonial First State was tied to CBA. Additionally, 58 per cent thought Retireinvest was independent of ING, 44 per cent thought Apogee was independent of MLC/NAB and 51 per cent were not aware that Genesys was tied to Challenger.
Walker believes that without this basic understanding, people cannot value financial advice.
“If people don’t understand the service they’re going to receive, that is the written information they’re being given does not clearly explain what service they’re going to get and how that’s going to be priced, then people are going to find it hard to start equating value to what they’re getting,” he says.
One of the points that Walker’s keen to get across is the reciprocal service obligation. If consumers are paying a trail, he says they should be looking for ongoing service from their adviser.
But if many people are already reluctant to pay for financial advice, are they likely to want to pay for an add-on service like ValueCheck?
Walker admits he has no direct evidence of consumer demand and is yet to see what people make of the service.
However, he says if people are genuinely confused or unsure about what they’re being asked to pay and who is being remunerated, then it’s a small price to pay for peace of mind.
“It’s a peppercorn pricing structure; it’s not that expensive,” he says.
“If I’m going to get advice from someone but no follow-up service from them, then I’d like to know why I am paying a trail. If I’m getting advice from someone but they’re promising to contact me with regular updates, now being a classic time for advisers to be communicating with clients about how to respond to the level of volatility in the market, then clients can take a little bit of pain in the market but know their adviser is at least there for them trying to help them through. I feel confident people will be happy to pay for that.”
