SUB CATEGORIES Buying  |  Selling | 

Moonstone: Products and fees structures need simplifying

30 September 2013 Moonstone

In a competitive environment, cost disclosure enables price comparisons, leads to price competition and results in higher investor return. The practice, however, is met with an almost united “can’t do” response from the industry, with only a few providers disclosing costs to investors. Why?

FedGroup Executive, Grant Field's search for a high-end sound system taught him a few lessons which answer this very question, at least in part.

For most of my life, I have dreamt of owning a high-end sound system. When the time finally came where I could realistically start looking at the options, I thought the search would be easy. I soon discovered that determining what is good value for money is far more difficult than it seems.

Lesson One: Advice is hard to find

As I began to investigate the various options, I was astounded at the lack of good advice. Every shop sold their product as the best. As a trained engineer, I soon discovered that many of the people giving me the advice did not even understand the basics.

The more time I spent investigating the industry and their products, the more apparent it became that the majority of people I met were product pushers and inadequately trained. The parallel to Financial Services is almost uncanny. Whilst there are a number of excellent Financial Advisors, there are still many who don't understand the basics and sell, based on the commission that they will receive.

Lesson Two: Price does not equate to value

The second lesson I learnt is that price and value are not necessarily related – a challenge faced by those looking at financial services products. Assuming costs were fully disclosed, should one buy the cheapest option? If costs are disclosed, there should be a standard template of representing the risk and return associated with a product. This is of course very difficult to do. Is a money market a safe low-risk investment? Corporate Money Market comes to mind.

Lesson Three: Costs are always too high

As I searched the internet, spoke to dealers and navigated my way through the audio market in South Africa, I was surprised at the high mark-ups. As soon as I was aware of these mark-ups, I felt ripped off. The problem with feeling ripped off is that I had no idea of the costs involved in advertising, rent, security and a whole host of requirements that come with a retail store.

This is no different in the financial services industry. A disclosure of costs, without some understanding of the underlying cost structures, does not make sense. Financial service companies have many costs (rates, electricity, compliance and staff) that are increasing in an environment where the pressure to reduce their fees has never been higher.

Lesson Four: Full disclosure does not equal easy comparison

Once I had a list of costs, mark-ups, and almost every specification available, I thought that choosing a system would be easy. This was most certainly not the case. The volume of information was immense, the specifications complex and time required analysing, significant. The same is of course true with financial services products. Even if financial advisors and investors do receive full disclosure, understanding the various structures can be complex indeed. Most clients battle to understand the difference between a rand-based fee versus a percentage-based fee, never mind the often complex fee models that exist.

Lesson Five: Educate Yourself

After reading an article like this, one would be forgiven for thinking that I am not in favour of disclosure. This couldn't be further from the truth. I believe in disclosure, but I also believe in simplicity. Products and fee structures should be simplified to ensure that clients know exactly what they are buying. If there is one lesson I learnt whilst shopping for sound systems (and that I would recommend to someone buying a financial services product), it is this: educate yourself.
Quick Polls


Do you believe the FIA awards help product providers to understand the service expectations of the intermediary?


A E fanews magazine
FAnews August 2019 Get the latest issue of FAnews

This month's headlines

Create designer policies through AI
Are advisers in a precarious position?
A claim, COIDA and a dog bite
Non-disclosure never an innocent fraud
Prescribed assets: The threat to pensions
Cannabis and the issue of trust
Getting the most from disability claims
Subscribe now