“Clients need to know what they’re doing,” Miles says.
“They need to have a place to go to besides the financial planner. The biggest benefit will be that they’ll know the right things to ask and also realise that we’re working in their best interests. In the long-term, I believe referrals will come because with Fortnum, they’re getting resources they wouldn’t otherwise get.
“The financial services industry is pretty complex, so we certainly have a responsibility to educate clients.”
Skinner points out that while particular advisers provide education, “it’s biased toward their products, so therefore non-conflicting education needs to be provided and accessible to everyone”.
“This is our way of catering to clients who think they have ‘silly questions’ to ask their adviser,” he says.
Paul Resnik, co-founder and director of FinaMetrica, which uses a system to assess financial risk tolerance, says educating clients on the risks of the finance industry creates more engagement, understanding and commitment to their adviser.
“I’m an advocate for clients’ informed consent – collaborative decision-making that leads to clients taking some responsibility for their financial future,” Resnik says.
“Feedback from our subscribers is that there is greater persistency of investment and less churn when clients are involved in the decision as to the amount of investment risk they take on.”
Resnik says there’s a general perception that advisers know best, neglecting the real needs of the client.
“There is a philosophical argument that leads to a commercial benefit in the form of the client’s informed consent to the plan they accept from their adviser,” he says.
“In the alternative approach where the adviser simply tells the client what to do there is the obvious danger that the adviser does not weigh up the competing goals in the same way that the client would. In this professional judgment or paternalistic model of advising, the adviser takes all of the risk as there is no shared responsibility with the client.”
But Resnik says this can easily be remedied.
“Advisers must share the decision-making or clients will continue to lose trust and faith,” he says.
“As an industry, we deliberately mislead people so they can’t make informed decisions. Clients are generally financially illiterate so the best way to change this is to explain the risk in their investment in a way that is relevant to them. If clients don’t participate in the decision-making, they are less likely to be interested in the outcome.”
Skinner says education “needs to be something that forms part of our regular communication with clients, becomes part of the client-service proposition”.
“It’s important to continually engage and be proactive,” he says.
“Prospective clients are now going to be a lot more sophisticated and knowledgeable. Younger clients are going to want to know [about the process]. We want to help people with their confidence and knowledge on money – that’s ultimately what we want to do.”
