Price vs Value

There is little doubt that there is downward pressure on price in the retail financial services sector.

Most of us would agree that some financial products and services have been historically overpriced and not of great value to the consumer, but things have been and are changing.

Two examples of pricing have come to light in the last couple of days both of which are about the competitive element of the intermediary offering.

One potential new client has been trying to get a comparison between what we charge for our services and what his current adviser charges. Essentially there are three elements to this.

The first is the cost of intermediary services, advice, planning and the wealth management offering.

We have been able to describe to him our explicit advice fee expressed as a monetary amount and our ongoing service charge expressed as a percentage of the value of the assets we can manage for him.

His current adviser is charging far more than we charge.

It also appears that we can obtain the fund management part with lower annual management charges and lower total expense ratios than are available through his current adviser.

Finally the cost of the platform we use to manage his investment affairs is cheaper through ourselves than it is through his current provider.

So, without wishing to sound ‘smug’, we can deliver at a much cheaper cost to him future services. But it is not as clear cut as it seems.

Our investment advice for example is on an advisory basis; we can only make changes to the client’s portfolio having made recommendations and getting a client instruction to proceed.

Our ‘competitor’ operates on a discretionary basis where they make the changes and then communicate those changes to the client later on.

Now we would argue in favour of our approach and they would argue in favour of theirs. They are though different and therefore you would expect the price to be different.

The second example is of a client who came to us through their Solicitor to seek advice about their pensions situation on divorce.

We have duly provided the advice to them at a fixed project fee. They now have some decisions to make about implementing our advice which they can do in one of three ways, via ourselves, via another intermediary or indeed via a do it yourself approach.

Another intermediary with whom the lady had an historic relationship has said referring to our pricing package on implementation, “that sounds expensive, we can do it much cheaper” so we are not always going to be the cheapest but neither are we the most expensive.

Our goal all the time is to be good value for money and – importantly- transparent.

But it is value that matters. Knowing the price of everything, and the value of nothing is as dangerous in financial services as it is in any other transaction.