‘Guidance’ rather than ‘execution’ is the key to servicing those orphaned from the advice market says Bestinvest20 February 2013
With the introduction this year of new rules replacing commission-based financial advice with the charging of explicit fees, the UK retail financial services industry is now less than two months into what is arguably its biggest ever shake-up. And with a recent ‘mystery shopping’ survey by the Financial Services Authority concluding that a quarter of the advice provided by banks and building societies was questionable, it is no wonder then that many private investors might be considering alternatives to traditional financial advice.
While attention has focused on transactional execution-only services, leading investment advisory group Bestinvest believes that the real area of competition for servicing those orphaned from the advice market is going be in the nascent area of “guidance”.
Peter Hall, Chief Executive of Bestinvest, commented: “There is no doubt in our mind that the non-advised market is set to expand and we see this as a strategically important area for us to focus on, given our scale and expertise. However, while much has been written about ‘execution-only’ services as a possible solution for servicing those orphaned from the advice market, there is a tendency to treat these services as one amorphous group that competes primarily on price. Given the potential growth in the non-advised channel, we think there needs to be a greater understanding of the difference between those services that are transactional in nature and aimed at investment enthusiasts who do their own research, and those services which are better classified as offering guidance to investors who need help, but not advice, in selecting and managing their investments. In our experience of over 25 years, these are two very different ends of the market.”
Hall points to the research conducted late last year for Bestinvest among existing private investors*, which indicated that even though many would be less inclined to pay explicit fees for personalised advice in the future, just 10% stated that they felt capable of “doing a better job alone”. Furthermore, when asked to rank which factors were considered important in managing a portfolio,
just 4% of respondents indicated that keeping costs down was the top priority. Investment selection, asset allocation and risk management were seen as overwhelmingly more important considerations.
Hall added: “Investors care about value for money but in most cases, cost is not the primary consideration so the appeal of stripped down execution-only services is limited. In our view access to high quality research, portfolio planning tools, clear information and real people to help guide investors are going to be the key attributes needed to support those who were, until recently, happy to use an adviser. This is why we have focused on building out our service proposition with initiatives like First, our free investment report service, and other tools.”
While the guidance space, like the execution-only channel, is also seeing new entrants, Bestinvest argues that many of these have limitations. In some cases these are internet-only services but the bigger weakness in Bestinvest’s view is that these are focused on directing investors towards purchasing new investments.
Hall concluded: "Tools and decision trees to guide an investor towards selecting a fund for their ISA or SIPP, or publishing a list of recommended funds, are all well and good but the real challenge facing those orphaned from the advice market is what to do with the investments they already own. Many of these investors may have no new cash to invest at all but their existing assets do need to be monitored and appraised. This isn’t just about ‘dog’ funds either but about the overall strategy as even the most carefully crafted portfolio will drift over time, potentially exposing the investor to too much risk. Even for those who are in a position to make new investments, selecting a new fund through a guided process which does not factor in the investments an investor already holds may not lead to the most appropriate outcome since they may end up compounding an unbalanced asset allocation, for example.”
Bestinvest has developed a radically different guidance service called First that enables investors to get a free report on their existing portfolio to identify the level of risk they are exposed to, how well balanced their asset allocation is, a view on the quality of each holding and analysis of the costs of the portfolio. First is available either online or can be completed via the post and is supported by a telephone based team. For more details visit www.bestinvest.co.uk/first or call 020 7189 2424. First sits alongside Bestinvest’s other services for non-advised clients including its low cost platform, Select, and well established research and planning tools.
Bestinvest First is a guidance-only service, which means it does not provide investment advice or recommendations. The value of investments and the income from them can go down as well as up, and you can get back less than you originally invested.
*The Death of the Salesman and Rise of the Self Directed investor was a research report based on online fieldwork conducted by YouGov among GB private investors.
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Notes to Editors:
Bestinvest offers investors who do not require advice, the following guidance services:
- Free analysis report on their existing portfolios, via the Bestinvest First service. There is no requirement to become a client to use it
- A range of financial planning tools and calculators including a pension planning tool
- For investors who want to build their own portfolio but with assistance Bestinvest compiles a Premier Selection buy-list of funds rated by its large research team which are selected on the basis of qualitative and quantitative scrutiny of managers and their processes
- For those wanting a simple, off the shelf solution, Bestinvest has compiled a range of ready-made ISA portfolios to suite different investor profiles which blend together a selection of highly rated funds invested across key markets
- For those wanting a managed solution Bestinvest offers a range of whole-of-market Multi-Asset Portfolios from £500 upwards. Both services reflect the views of Bestinvest’s research team on markets and funds for different risk and goal profiles and are adjusted automatically. MPS non advised service and MAP not a guidance service
- Bestinvest Select is a fund supermarket service which provides discounts on fund initial charges, typically to zero, and then reduces the net on-going costs through annual loyalty bonuses of up to 0.5% on funds These terms are available across all account types: an ISA, Junior ISA, SIPP or Investment Account
- Proactive monitoring of investments, including fund downgrades and asset allocation analysis based on a look-through of the underlying funds to show an overall breakdown of where the portfolio is invested
Founded in 1986, Bestinvest has grown into a leading private client adviser which helps over 50,000 investors. Bestinvest offers a range of services including guidance, investment advice, financial planning and discretionary portfolio management all of which are underpinned by a commitment to rigorous investment research. Through its low cost Select service, Bestinvest offers execution-only investors a Self-Invested Personal Pension Plan (SIPP), Individual Savings Account (ISA), Junior ISA (JISA) and Investment Account with access to more than 2,000 funds as well as investment trusts, shares and Exchange Traded Funds. Bestinvest has won numerous awards including Best Stockbroker for Customer Service, 2012 as voted by the readers of the Financial Times and Investors Chronicle, and Investment Adviser of the Year 2012 at the Professional Adviser Awards. Headquartered in Mayfair, London, Bestinvest has 14 regional offices with 200 staff servicing clients with over £4 billion of assets.
Tilney is a leading investment and financial planning group that builds on a heritage of more than 180 years. Our clients are private investors, charities and professional intermediaries who trust us with over £23 billion of their assets. We offer a range of services including financial planning, investment management and advice and, through our Bestinvest service, a leading online platform for those who prefer to manage their own investments.
We have won numerous awards. Tilney has been awarded Best Conventional Advisory Service at the 2018 City of London Wealth Management Awards, Best Advisory Service in the 2015 City of London Wealth Management Awards; Investment Award – Cautious category in the Private Asset Management Awards; and Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. Bestinvest was voted Best SIPP Provider and Best Fund Platform at the 2017 City of London Wealth Management Awards, Best Direct SIPP Provider at the YourMoney.com Awards 2017, Best Stocks & Shares ISA Provider at the 2017 Shares Awards, as well as Best Self Select ISA Provider, Best Online/Execution-only Stockbroker and Best Investment Platform 2017 at the FT and Investors Chronicle Investment and Wealth Management Awards, as voted by readers of the FT and Investors Chronicle.
Headquartered in Mayfair, London, the Tilney Group employs over 1,000 staff across our network of 30 offices, enabling us to support clients with a local service throughout the UK.