In this blog series, I look at what the Adviser Alpha is, and get some helpful information from Vanguard, which has conducted a study into the value a financial adviser can bring.
I’ll always bang the drum for financial advisers on my podcast and website; I’ve obviously got a vested interest in doing so! But, I’m convinced that a good adviser will cover his or her fees many times over by adding value to a relationship in many ways.
You could call it an adviser’s ‘alpha’ – alpha is a term usually used with active fund managers, and it refers to the added value that they give their clients by making good investment decisions. Adviser alpha means the added value anyone with a good adviser should receive as a result of their adviser's actions, over and above somebody who does all their financial planning themselves.
It's not about investments
I set up Meaningful Money with the aim of helping people to make most, if not all, of their own financial decisions. I’ve had a lot of feedback from people to say this is working, and they’re taking control of their finances, sometimes in a way they’ve never done before.
In my day job as a financial planner, I know that I’ve helped countless clients over the years, but is it possible to quantify that help? I don’t pick funds for people and I can’t control the stock market, so I can’t take credit for their investment performance.
I haven’t made them more money because of my great investment decisions, so is there a way to quantify the value I’ve added to the relationships with my clients?
I spoke to Neil Cowell, Head of UK Retail Sales for Vanguard, which helps around 14,500 adviser firms around the UK by delivering funds and services to them.
Vanguard is one of the world’s largest asset managers and was formed in 1975. It currently has about $4 trillion being managed on behalf of its clients.
Vanguard carried out some research to identify the key areas where an adviser creates value for her clients. They attempted to put a number on that value, making for an interesting piece of work.
The Adviser’s Alpha Programme is a collection of best practice across the globe – how Vanguard have seen firms make the transition from relying on commission to a fee-based practice, and how they can articulate the value they deliver. There’s no doubt that advisers do deliver value, but the Adviser’s Alpha Programme seeks to make that more tangible, and put a number on it.
Retail Distribution Review
To explain further: in 2013 in the UK, the Retail Distribution Review abolished commission on retail investment products, such as pensions and investments. Advisers who had been able to say to their client: “We can be paid via the product”, now have a discussion with them and quote them a fee, which the client can accept or refuse.
Clients won’t want to pay the fees if they’re not receiving value, so it’s been necessary for advisers to rethink the value that they give to clients, and to understand that it’s no longer about picking funds for people or flogging ISAs and pensions. With the internet giving people access to information, advisers now need to help clients articulate their own goals and put solutions in place to meet those goals.
For an adviser, to be able to articulate and put a number on the value that they add to the client relationship is important, but difficult.
Next, we’ll look in more detail at the different things an adviser does to increase the value of their work.