Clear fees for clear services: Phil Farrell reflects on a simpler time and suggests we take note for the future
Back in 1978 when I was a wee lad and had just experienced my first Arsenal heartache, a 1-0 loss to Ipswich Town in the FA Cup, the cost of a Mars Bar was 8 pence.
The counter of the local news agent was a kid’s wonderland, blanketed in a mesmerising collection of ice-cream tubs full of pick n’ mix sweets at prices that made it near impossible to blow my 50 pence pocket money in one visit.
Two Fruit Salads/Black Jacks or four MoJo’s to the penny! Days of wonder, days of choice and days of value.
Then it changed.
The passing years saw a move to the mainstream and a reduction in sugary diversity and invention.
Gone were the days of choice, the humming and harring as we sought the perfect confectionary combo to fill our little white paper bag, quite often to the frustration of the shopkeeper.
The marketing men had worked their magic and we now knew what we wanted, or we thought we did, before we entered the shop.
Are these sentimental recollections, or do they represent a wider underlying desire for a return to freedom of choice, personal expression and value for money?
I think we can apply elements of this experience to our pension schemes and more specifically the delivery of professional services. I started work in the pension industry in the summer of 1988.
Back then professional standards and the degree of connectivity between administrators and advisers was markedly less than it is today. Something had to change and it did, courtesy of Captain Bob and the resultant Pensions Act 1995. The Act tightened the screws on pension scheme governance and is seen by many as the Big Bang of much of the pensions legislation we have today.
However, legislation on its own is a blunt instrument. This is where advisers earn their corn, it’s simply not enough to regurgitate ad verbatim to toe-the-line and tick the box.
Change can be a force for good, challenging the status quo and presenting opportunity.
Advisers need to identify, explain and implement these opportunities in a way that is cognisant of each client’s own objectives, needs and constraints.
It also means that clients should have the freedom to build their own little white paper bag of advisory services into which they can delve when needed,
The other parallel I’d like to draw from my prepubescent memories is the certainty of my weekly financial reward and advisory fees.
My palm would be crossed with silver (copper/nickel alloy really) to the princely sum of 50 pence every Thursday evening. Sadly, my parents didn’t see it necessary to protect the purchasing power of my hard-earned cash by linking it to an inflationary index, a definite negative back then!
However, from my parent’s perspective there was certainty, they knew that every Thursday they were going to take a hit to the tune of 50 pence in return for the satisfactory discharge of my chores, homework and behaviour over the previous seven days – symbiosis in action.
My point here is that advisory fees should be clear and as certain as possible and deliver value for money on two fronts.
The first is that any fee should always only arise as the result of the delivery of an agreed service. The second point, and this is where some advisers perhaps need to be a little more considered, is that they represent the delivery of a service which provides a meaningful return.
For example, this could be a service that addresses a regulatory must do, or a service that improves efficiencies, reduces cost and improves timeliness.
And before you ask, Munchies? They’re still these same size, your hands just got bigger!
Phil Farrell, Partner