Advising or Selling - Which are you doing?
Written on 29/08/2019

So recently we learned that the FCA discovered that a DFM that recently collapsed was investing its model portfolios into high risk bonds and particularly where clients were investing from DB transfers. 

I can hear you all, collectively tutting with me or aghast at such action. 

SVS Securities was instructed to cease activity by the FCA as they felt that SVS “failed to show due regard to the interests of customers and failed to treat them fairly by promoting high risk bonds to retail investors through its DFM business” 

Behind this the FCA found that SVS was increasing the proportion of illiquid and high risk bonds in their portfolios for clients proposing DB transfers and that they failed to take account of client needs, furthermore they were concerned over the relationship they had with third parties involved, SIPP providers and advisers. 

So guess what? 

It got me thinking about whether you out there are truly advising or if the 1990’s is still hanging on in some of you…..are you really just selling stuff to clients and then fitting advice around a sale? 

What I mean by this is as follows: 

Advice follows a tried and tested pattern: 

  1. You complete a fact find (know your client)
  2. You agree the client’s objectives (know your client)
  3. You research a potential solution (you don’t yet know who is best at this stage)
  4. Your research points to a provider/solution or a short list of suitable ones
  5. You recommend the best solution to meet the client’s needs
  6. You implement the solution 

Simple right? 

Sadly not as simple as you may think. 

Allow me to elaborate and use a common example, Prudential. 

Now when the Prudential launched their PruFund range I thought it was a little odd, we were in effect returning to the old days of unitised with profits (UWP) and surely that wasn’t a good thing, UWP died in the 1990’s and was consigned to the history books……or so I thought. Prudential on the other hand thought differently and it is easy to see why. 

Who had a massive With Profits fund? Prudential. 

Who was know for very little else in investment? Prudential 

Who was selling no With Profits investments anymore? Prudential 

Who saw their company profits falling as a result? Prudential 

Who relaunched what is an outdated investment with a new packaging? Prudential. 

So here we are in 2019 with the “PruFund” range and those lovely Expected Growth rates (EGRs) and suddenly advisers find that their clients all want “smoothing”, not less volatility or a less scary investment ride, no they all want specifically “smoothing” 

Let’s be clear here, we fell out of love with With Profits back in the 1990s as the bonus rates were ridiculously poor and they no longer offered the guarantees they used to but here we find ourselves back in love with them, all because they are called something else! 

Now I have seen an adviser who “advises” on nothing else and strangely all his research only ever leads to Prudential and every one of his investment clients wants “smoothing”, never mind that most probably don’t understand it or investments as a whole but he is adamant that only “smoothing” can meet their goal (well when you list the client objective as “smoothing” it’s no wonder) 

But what is this person really doing? 

They are selling a product, they are not advising, they have chosen the solution before they gather any data from their client and fit the fact find and suitability report to match the outcome, I see this most often with Prudential, Royal London and in-house DFMs. 

Now back in the 1990’s this was ok when you were a tied agent or direct seller, you had no choice but I thought that advice had really moved on from this and to still see advisers flogging products is very disappointing and may I say risky. 

Let me break it down, Niel style……. 

Gone are the days when it is OK for an adviser to say “I like Royal London for pensions or Aegon for platforms” unless they are tied to those companies they should not already have decided who will be best for the solution, sure they can guess that they might be suitable but the time has well and truly passed for an adviser to have decided before research who the client will end up with, it just doesn’t stack up anymore and it really does expose the adviser to unnecessary risk. 

Now it is a little different (but not completely) with platforms as they can obviously hold different providers and funds but research is still mandatory for a platform. 

What do we believe at IFAC? (Or rather what do I believe!) 

I believe that with the exception of tied advisers or direct advisers, you cannot ever know who the best solution is provided by for any client until after you have followed the basic procedures: 

1.Know your client fully

2.Gather their objectives

3.Conduct research (it is here that the Eureka moment happens!)

4.Make recommendations

5.Implement solutions 

You can’t miss out step 3 or impose your own values at step 2, you just can’t because then you have become a salesperson and are no longer an adviser. 

In an age where everyone and his dog is looking to sue everyone else for anything, you just can’t be so blatantly reckless as to flog products anymore, you just can’t. 

You need to be following a credible system to deliver your advice, especially if your are independent or even restricted. 

Fortunately for you BAT contains an endlessly customisable FACT FIND. This is your tool to knowing your client, yes you can ask fancy questions, obtain a plethora of documents but a good fact find is always something the FCA will look for.

Go back to the FCA Handbook and guess what? Know Your Client is everything and it always has been, I don’t believe there has ever really been a time in the last 20 years when it was OK not to make the effort to know your client. 

Knowing your client leads to understanding their real objectives and in turn how to programme your research, as Yoda may have at one time said (probably in a director’s cut) knowledge leads to objectives, objectives lead to research and research leads to a recommendation….then an only then an adviser will you be….

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