Advisers: you don't have to be right, but you do have to be honest
It really shouldn’t be so difficult to find a financial adviser that will explain in easy to understand terms how much they charge, and what for.
Who should give financial advice? Now there's a question for you. It isn't a new one. Back in 1964 Ken Hart of Barden Hart and Blake was complaining about the need for a proper regime.
Once up a time, he said, most British investors "would have been happy with an investment policy which maintained the face value of their savings and provided a regular income. Inflation has put an end to that. Today, no investment policy can be said to be successful unless a portfolio grows at least sufficiently in terms of capital and income to compensate for the depreciation of the value of money."
The result? That "many thousands of small investors who once never ventured beyond a building society or local corporation loan now buy ordinary shares." Sounds familiar doesn't it?
The article goes on to complain that despite this flood into equities there was still no "professional body to which a man can turn for advice". There was no requirement for stock brokers to understand anything other than the mechanics of investment; no way for members of the public to discover how well an adviser had done in the past, or indeed relative to any other advisers.
Hart's solution to this was simple. He reckoned that anyone who set himself up as an investment adviser or portfolio manager should have to regularly produce documents comparing his own performance to the index.
Then, a Society of Investment Consultants should be formed which would "grant membership only to those who could show they had beaten the index". Those who could not would be "banned from practising." There would, he said, be no need for examinations under such a system as only one qualification would be needed for each adviser: "the ability to be right".
I'd like to think we have moved on a bit since the 1960s. But perhaps we haven't that much. Sure, our advisers take exams even if they are rather too easy. Any idiot can qualify as a tied adviser, and you don't need to be much above idiot level to pass the basic exams to be an IFA, something that makes it harder than it should be to find the good ones. And sure, there are associations aplenty.
But it is still very hard to compare the performance of advisers against each other; we have certainly failed on the insisting they be right bit of the deal; and possibly worse, we still haven't figured out how to make advisers honest.
A review published by the Financial Conduct Authority (FCA) a few weeks ago suggested that the majority of UK financial advisers fail to disclose the cost of their services properly, while their various complicated charging methods make it absolutely impossible for anyone to compare like with like.
The worst culprits are the higher-charging wealth managers and private banks. They aren't doing this by mistake. It has been a year since the new rules about cost disclosure came into force and they aren't exactly complicated. I can, in fact, sum the whole thing up for any confused advisers in just a few words: you must tell people how much you are charging them for your services in such a way that they understand what you are talking about. See? Simple.
No one is asking advisers to be "right" any more. We've downgraded our demands. Now all they need to be is clear. I can see how there may be some problems in the world that are just too hard to solve, but I'm amazed that creating an honest and competent group of people to give financial advice to a rich and willing clientele has to be one of them.