If Meatloaf was looking for advice perhaps he would have written:
Oh, I would do anything for advice
I would do anything for advice, but I won’t pay that
No, I won’t pay that
We read many conflicting articles about how people are desperate for advice but unsurprisingly they don’t want to pay for it. The latest survey (by a direct provider) identified that individuals would pay a maximum of £250 for advice.
The point is that often we place a value on something based on whether we think the price matches the return. For example, we recently purchased some Ikea furniture and after spending a weekend building it the thought of building more filled me with dread.
When we purchased yet more flat packed furniture I decided that I would happily pay anything for someone to build the furniture for me. We did some research and found someone who could do this for us. The cost was an additional 20% of the products we had purchased. Weighing this cost against the effort and time of building the furniture we felt this investment was worth every penny.
So for me personally when I am paying for something to be done the test is does the price match the return.
However, when we turn to paying for advice it is much harder to quantify because there is no visible return and so we can’t place a value on this.
Paying for advice
The natural question is therefore how do we place a value on advice?
Vanguard did some research which showed that individuals who had advice compared to those that didn’t added 3% p.a. to their annual returns. Even if the survey is skewed towards the advice market it can help us to understand how individuals might quantify the cost / value of advice.
Advice is much more than just selecting a product whereas direct propositions are purely product focused with the emphasis on price. This makes it very hard for people (including financial journalists) to compare the two. It is therefore easier to focus on the product and price aspect because we can understand that. If we take that argument one step further then it makes sense to question why we should pay someone to select a pension when we can do this ourselves.
With this in mind you can see why people say that they would pay no more than £250 for this service. However, advice is much more than selling a product and many articles and surveys fail to highlight this. In part this is because they can’t articulate the value of the advice market (or perhaps it doesn’t make headlines).
The recent correction in the market, and volatility highlights why advice is much more than a product. At its core advice is about understanding clearly what our goals are (and these can be multiple) and identifying the means of achieving them. Importantly in many cases it is a lifetime relationship.
Effectively it is best described as a road map; helping us to get to our end destinations. Price does play a part but what individuals are paying for is someone to help them achieve their goals and steer them through the short term noise which inevitably happens with investing.
If we believe in part the Vanguard survey that even after fees financial advisers can deliver outperformance of 3% p.a. then we can start to understand the value of advice.
Oh I would do anything for advice
There is a strong argument that retirement advice is more relevant now than ever before. Guaranteed pensions for many are gone and we are living longer. In a nutshell we are very much in charge of our retirement destiny.
Retirement is not just about a pension but how we achieve the most tax-efficient income. For those who draw income from the pension fund then there is more to consider about managing that income and the assets. Going further there is long term care to consider and inheritance tax planning.
This is where advice really pays.
We might joke about Meatloaf’s song but it is true we want advice but we don’t want to pay for it. If we go back to the Ikea furniture it is quantifiable. I can see the end result I just need to judge whether the cost is comparable.
With advice it is much harder. Individuals can manage without advice but it requires time and commitment (a bit like building Ikea furniture); we are not all suited to this.
In summary although not quantifiable, good advice is about having a long term relationship with someone who will guide you towards your goals. Whether the fee is £150 per hour or 1% a year it has to be something to consider as worthwhile if it helps us achieve what we want.
NOTE: This is written in a personal capacity and reflects the view of the author. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. This is not a recommendation to buy any product or service including any share or fund mentioned. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.