I was struck recently when I heard this phrase on the always excellent Adviser 3.0 podcast from private bank escapee Ollie. He was referring to the fact that many people have a relationship with an investment manager who solely looks after their money and not after them. They don’t know that they are missing out on proper financial planning and think that investing their money is the only service they can access.
This can lead to the client being ‘over invested and under advised’.
The same problem can also apply though when you are receiving financial planning and paying for it with a percentage of your portfolio. This is because any financial planning advice that shrinks your portfolio also shrinks the adviser’s income. This is a huge conflict of interest.
You might think that your adviser’s role is to grow your money but there are several key planning points where the opposite is true. It is worth exploring some of these to see if you are missing out on advice due to the way you are paying your adviser for it.
- Debt repayment.
- As interest rates are currently on the rise it might be the right advise to disinvest some of your money to repay mortgage debts as they become more expensive. Saving a guaranteed 5% per year interest for instance, might be much more attractive than making an non-guaranteed investment return, particularly if you have to pay tax on it.
- Buying an annuity with your pension.
- As interest rates rise, so do annuity rates. Buying a guaranteed income for life with some or all of your pension might be the right option for you.
- Avoiding inheritance tax.
- Often the simplest solution is to give some money to the next generation to help them pay down mortgages or fund things for their children.
In all three of these cases, to give the advice, the percentage based adviser has to take a pay cut. They might be an excellent adviser and might do this but why even introduce the element of conflict in the first place.
A flat, retainer fee adviser is paid the same regardless of the advice they give in these three examples and so the advice is not conflicted. This might not mean that the advice is any different, but you can be sure that it is independent of any external conflict of interest.
Which begs the question; if you could access the advice you are currently receiving for the same price or less but not linked to the value of your portfolio, why wouldn’t you?