Advisers: Patting Themselves on the Back for... What Exactly?

Ah, the sweet sound of self-congratulation in the financial advice world. Advisers everywhere are gleefully basking in the glow of what they claim is the "optimum" level of client understanding of fees and value. That’s right, folks, consumers apparently get it—the best they ever have or ever will. A hearty round of applause, everyone! Except, wait a moment… what's this about high weightings being given to investment performance in those assessments?

Hold the applause. Let’s pick that apart. When, pray tell, did financial advisers gain control over investment performance? Last I checked, markets don’t dance to the tune of your local adviser. They simply deliver returns based on strategic asset allocation—an outcome advisers select but have no hand in crafting. Variations from those returns? That’s not some magical adviser pixie dust; that’s either skill or sheer dumb luck. So why the misleading emphasis on performance as if advisers are trading wizards?

The Real Value Advisers Bring

Here’s the thing: good financial advice has little to do with chasing returns. Vanguard’s much-praised Advisor’s Alpha framework is a shining example of what actually adds value. And spoiler alert: it’s not stock-picking or market-timing. Let’s take a look at the real contributions advisers make—ones that actually move the needle:

1. Asset AllocationCrafting a portfolio aligned with a client’s goals, risk tolerance, and time horizon. Revolutionary? Hardly. But it works.

2. Cost-Effective ImplementationKeeping expense ratios low. A simple act of choosing the cheaper option can add 30 basis points to returns. Bravo! Ground-breaking stuff.

3. RebalancingAdjusting portfolios to maintain allocations. Adds a measly 14 basis points annually. Hardly cause for fireworks, but it’s something.

4. Behavioural CoachingNow we’re talking. Keeping clients from making idiotic decisions during market volatility? That’s where the big bucks are—up to 200 basis points, according to Vanguard. But good luck quantifying that in a way clients understand.

5. Tax-Efficiency StrategiesUsing tax wrappers effectively? Adds another 60 basis points. Withdrawal sequencing in retirement? That’s another 120 basis points.

6. Total Return FocusPrioritising total returns over income? Sustainable, tax-efficient, and, shockingly, valuable.

Put it all together, and advisers can potentially add up to 3% in net returns annually. Sure, it’s a nice number, but let’s not pretend it comes from outperforming the market.

A Case of Misdirection

Now, back to the "optimum understanding" claim. Jamie Jenkins from Royal London is leading the charge with his Meaning of Value Report, triumphantly declaring that consumers’ grasp of fees is as good as it gets. Apparently, a survey showed clients rated their understanding at an average of 7.3 out of 10. Forgive my scepticism, but if the average person struggles to decipher their own payslip, I’m doubtful they fully understand the myriad ways advisers siphon fees from their portfolios.

And yet, advisers still seem happy to let clients mistakenly think they’re earning their keep by delivering stellar investment performance. Mike Barrett of the Lang Cat put it best: “It’s not just about investment performance.” But try convincing clients of that when the industry keeps hammering performance as a selling point.

Let’s Not Ignore the Elephant in the Room

The report does raise an intriguing point: non-advised clients remain clueless about fees and value. The FCA wants to bridge this gap by exploring “simplified advice services” for the less affluent. Admirable in theory, but in practice? A logistical nightmare. Advisers are already overwhelmed with high-value clients. The idea that they’d shift their focus to serve less profitable ones? Barrett sums it up: “You’d be insane.”

So, what’s the solution? Here’s a thought: how about a little honesty? Advisers don’t control markets. They don’t create alpha from thin air. Their value lies in managing emotions, maximising tax efficiency, and delivering long-term strategies—not in pretending they can beat the market.

Final Thought

Consumers may have reached "optimum understanding" of fees, but the industry's obsession with framing value around investment performance is a disservice to everyone involved. It’s time for advisers to own their role as behavioural coaches and strategic planners, not wannabe stock-pickers. Otherwise, all that back-patting is little more than a self-serving smokescreen.