Our Founder and Director, Cathi Harrison, recently took part in The Lang Cat DEADx event and spoke on the panel – she made some important points about value, specifically around MiFID II and investments. Catch up on what Cathi had to say below…

“The question of value, and the role of active and passive management within that, is something that came up at one of our recent training academy events.

At one of our sessions earlier this month, the point was made that when you compare a passive investment with an active one, why would you not be choosing the passive strategy in order to deliver the best outcomes for your client?

This was argued not just on the cost front, but in terms of performance as well.

Schroders were representing the active side of the debate, and they accepted that if you look over the past 10 years, passives were a good place to be.

But they also argued the value they add is when the market turns and we find ourselves in another downward market cycle. In that situation, they argue, active management has an important role to play.

What I think is interesting is when that turn does happen, which it inevitably will in the not-too-distant future, the speed at which markets change is very different now compared with even what we saw in the financial crisis.

The message we give to people who are new to the profession is there’s no single right answer when it comes to active versus passive.

But there is a potential advantage that active managers have in that when they are tested by tough markets, that could well be their chance to shine.

Explaining charges, and what is reasonable

There are many layers to the cost of investment, from advice charges and platform fees to various investment management costs. It’s easy for us to forget how difficult this can be for clients to understand.

Costs and charges disclosure is much clearer now than it ever used to be, particularly as the breakdown is now given in pounds and pence.

Yet it can still be quite hard for clients to really ‘get’ what it is they are paying for. And if they can’t really understand what charge covers what service, then how can they truly understand value and what good value looks like?

Given the adviser or planner is the one who’s closest to the client, arguably the advice charge is the easiest part to explain as it’s where firms can articulate their value.

It’s not about markets, or complex things that clients don’t necessarily understand.

It’s about the relationship, and sitting with that person through challenging times and helping them plan. That is intrinsically what value is all about.

The funds and the platform should offer value too, but that can be harder to explain.

Of course, there is then the issue of how you define what is a ‘reasonable’ total cost of investing.

On the paraplanning side of our business, you do still see some total charges that make you take a sharp intake of breath.

It’s not for us to say what’s right or wrong, but sometimes we do suggest alternative approaches.

Equally, there are some advisers where we’ve argued an increase in fees is justified for the amount of work they are doing.

There are people who are so scared of being seen as ‘overcharging’ their clients that they are not making any profit, and don’t have a viable business model as a result.

Value is subjective, but I think there are clear lines around where certain levels of charges aren’t viable.

The role of regulation and Mifid II 

We are well versed in the reality of costs and charges, and just how complex these can be.

Our admin team spends a huge amount of time on the phone to providers trying to get an accurate picture on costs, and having to deal with the fact that every company calls charges something different.

We’ll get a headline cost figure, but then when we double-check this and ask further questions, it can take a lot of work to get to the true cost figure.

So what chance has the client got in understanding this, or taking any kind of interest in financial services more broadly?

Whether more regulation would be helpful here, or even whether the regulations we have now are working, is debatable.

Take Mifid II as an example.

Mifid II was undoubtedly well-intentioned, and if its aims of greater transparency had actually been delivered as a result of its introduction then that would have been great to see.

Unfortunately, so far it’s been a mess and has just caused more headaches.

I’ve seen a whole load of extra work for advisers and paraplanners, and presumably the same goes for providers. But I haven’t really seen any positive outcomes for clients.

If there was a way we could cut through all of that, and get to one clear, all-in total charge, that would be much more meaningful for clients than whether one particular product, recommendation or strategy offered value over another.”

Let’s chat value: Investments, costs & MiFID II
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