Quilter has followed in the footsteps of Vanguard by launching a formula to quantify the value financial advisers deliver for clients on an annualised basis.
At a press event on Tuesday, Quilter said the launch of Adviser Delta is about more than just the investment performance, and instead refers to the basics of what advice offers, such as taxation and investment choices, as well as how it can help advisers to navigate client’s emotions and behavioral biases.
Andy Thompson (pictured), CEO of Quilter, said while there have been previous attempts to quantify the value of advice, these theories have focused on the impact on investment returns alone.
“Adviser Delta aims to focus on advice rather than product, to compare the benefits advised customers receive versus non-advised consumers.”
The formula is based on studies commissioned with Deloitte and backed by academics from Cass Business School. It compares the “typical unadvised investor portfolio” with a “typical advised portfolio” to highlight the emotional and empirical value the latter can deliver.
Quilter said it had “socialised” this formula with 753 advisers and used different scenarios. Paul Young, head of business consultancy at Intrinsic, said they have made changes following feedback but “advisers have said they get it”.
A Vanguard knock-off?
However, Darren Cooke, chartered financial planner at Red Circle Financial Planning, labelled the launch a copy of Vanguard’s Adviser Alpha. “It’s been done before, and better, by Vanguard.
“This just looks like a desperate attempt by Quilter to try and justify their high charges.”
Rick Eling, investment director at Quilter, acknowledged Vanguard was an inspiration to the launch. “Adviser Delta goes further than Vanguard’s work because we consider a broader spectrum of advice elements, although it’s correct to note the similarities between the two pieces of work. We were partially inspired by what Vanguard has done in the past.
“Our research is not just about the value advice from Quilter, but from all professional financial advisers across the industry regardless of who they work for. We believe that financial advice is a valuable profession and that the work of a skilled adviser is worth paying for.
“We hope that all advisers will recognise themselves and the value they personally add when they read our paper.”
The firm said the formula will be available to the whole adviser market, not just within Quilter.
Advisers fail to highlight their value
In a white paper commissioned by Quilter with Boring Money and Cass Business School, the group outlined the three key elements that make up Adviser Delta.
These include: how the investment held, referring to the value an adviser adds by placing assets in the right name; enhancing the investment solution, referring to the value the adviser adds through buying power to leverage price or obtain product enhancements; and avoiding inherent behavioral tendencies, which ensures clients do the right things, at the right time, to realise their financial goals.
Andrew Clare, professor of asset management at Cass Business School, said: “We can speculate about the reasons behind the reticence of British people to seek paid-for financial advice, but perhaps one of the reasons is that the financial services industry has not done a good job demonstrating the benefits that might accrue from taking professional financial advice.
“By thinking carefully about the embedded value in financial advice and by calibrating its value, Quilter’s research provides a challenge to those who believe that one cannot put a value on sound financial advice, and also to those who believe that such advice is not worth paying for.”
Thompson added: “We know that there is a massive advice gap in the UK and that advice makes a substantial difference in people’s lives. But we struggle to explain it and so we become our own worst enemies as people don’t trust the industry, are not convinced of its value, and believe they can achieve their financial goals on their own.
“When reviewing the merit of professional services, consumers naturally want to understand what are they getting for their money? That’s a question the financial advice industry has struggled to answer because much of what we offer is intangible. This formula dramatically changes that conversation.”
