Three pieces of news have caught my eye recently, all highlighting the poor value of some of the investment solutions in the marketplace today.

The first was a BBC Radio 4 documentary featuring Gina Miller, one of the driving forces behind the “True and Fair Campaign” (www.trueandfaircampaign.com) . The documentary discussed the hidden costs within the UK fund management industry and touched on the Investment Management Associations latest “SORP” or statement of recommended practice for the annual accounting of UK authorised funds.

The SORP was supposed to make these hidden costs (such as transaction costs) transparent to customers. In fact it is a bit of whitewash and falls well short of this objective, not least because the IMA is the industry body for the sector and of course wants to ensure that it’s members can maximise their profits at the expense of their customers.

It seems that until an independent body imposes standards upon IMA members, UK authorised funds will continue to be poor value investment solutions. For all their talk of transparency, the IMA are having to be dragged to the table kicking and screaming…

You can read Gina’s analysis here: www.trueandfaircampaign.com/press-release

The second was a piece from Tony Hazel in FT Adviser. Essentially, it was a story about mis-selling, but his last point was really pertinent: the mis-selling might have occurred over 25 years ago, but Aviva have been happy to collect the charges ever since. Nobody has revisited this to try and put it right for the poor customer.

If Avivia (and all the other financial institutions) were really committed to transparency and honesty and putting the customer first, then they would go through their books, identify all these poor value products and put them right. That would be a much more powerful signal to the public than any amount of expensive marketing. In-fact I would hazard a guess that the cost of such an exercise might be cheaper than their marketing budgets…

You can read the article I’m referring to here: www.ftadviser.com/opinion/tony-hazell

Finally, Ros Altman’s Daily Mail front page on annuities (and Henry Tapper’s defence of her) grabbed my attention. Annuities are poor value products that generate big profits for insurance companies at the expense of customers (and their spouses). Ros, Henry and a few other campaigners accepted, nobody in either the government or the industry seem to want to address this.

You can read both pieces here: www.dailymail.co.uk/pension-gamble & www.pensionplaypen.com/annuity-fiasco

Where does this leave us? From the public’s view point here is an industry that is still unwilling to face up to its failings. Despite all the rhetoric:

• The IMA doesn’t want to disclose the true cost of investment to their customers
• Avivia and its peers are not addressing the legacy of poor quality products that their customers are still tied into
• The annuity industry is happy to go on taking large profits at the expense of their customers

Right from accumulation to decumualtion customers are ripped off. (And as a side point, I don’t know why IFAs come in for such criticism  when it’s the providers who are such poor value)

Where’s the opportunity in this?

Well, I think there is an opportunity for IFAs to show how they can add value here:

• A good IFA can help clients understand the costs and charges they face and switch them out of poor quality investment solutions into better ones.
• A good IFA can help at the crucial post-retirement stage and guide customers to a better value annuity or look at other options.
• A good IFA can help customers pick their way through the financial services minefield.

At the moment I think the IFA sector as a whole needs to do a better job of selling these benefits to the public. They should be differentiating themselves from the sort of rip-offs mentioned above.

I think a lot of the public lump IFAs in with the providers, bad banks and all the bad headlines they read about pensions, instead of understanding that IFAs can actually help them deal with those issues. IFA’s should be the good guys.

There is also an opportunity for better quality investment solutions as well. What would better quality be? For the bulk of most peoples’ portfolios I think it would be something like:

• Fair and transparent costs
• Appropriate risk rating
• Some genuine guidance about the expected levels of risk and return

These sorts of investment solutions exist – customers just need to be guided into them. To be honest, in my opinion the criteria I’ve set out there really point to passive investment based around an asset allocation strategy – with support  from an adviser or fund manager to ensure the investor stays the course.

So that’s the task – IFAs need to get in front of clients that have been poorly served by the financial services industry, show them just how they have been ripped off and how they can help them and then move them into better quality investment solutions or help them through the annuity minefield.

Thanks

Dan

P.S. I’m working on a training course discussing how advisers can help clients assess the risks of taking an income from their investments rather than purchasing an annuity (basically, how do you assess the ‘risk of ruin’). I’ll blog on that soon.