Restoring confidence among private clients is fundamental – BJM PCS
Restoring portfolio values to former glories may appear to be the crucial challenge at the upper end of the market for financial advice, but the return that is even more important is the return of trust.
The view comes from Barnard Jacobs Mellet Private Client Services (BJM PCS), a specialist in bespoke services for high net worth individuals and a firm that witnessed growth in client numbers of 20%-plus during the crisis year of 2008-09.
“Several international surveys by leading business consultancies have recently confirmed that trust and confidence in financial advice have been severely shaken,” says Tony Barrett, head of wealth management at BJM PCS.
“The wealth companies that survive and thrive in the new environment will have to restore faith and review their business models to ensure they deliver advice clients can believe in.”
The G20 and other bodies investigating the international meltdown have blamed opaque structures and financial product innovation that became increasingly complex.
“Our industry’s efforts to rebuild trust should therefore include a strong rejection of complexity and difficult-to-understand structures,” notes Barrett.
Another research finding in the wake of the financial crisis is that affluent clients are no longer obsessed by optimum returns. Good, solid performance over the long haul is often enough to secure the adviser-client relationship.
“Clients don’t want slickness and they don’t want you to shoot the lights out one quarter and then be losing handsomely the next,” adds Barrett. “The prime requirements are more basic than that – honesty, integrity and the reassurance that you are working in their best interest. It’s basically a matter of trust.
”The objective is to move beyond the status of adviser to that of ‘trusted adviser’. To do that, you have to walk the talk. Glib is no longer good; it’s probably suspicious.”
Growing financial literacy among clients means scrutiny is likely to become more intense.
“Regulatory scrutiny is almost certain to increase, but client scrutiny will probably go up even more,” says the Durban-based executive. “Clients now consult the Internet, DSTV, Bloomberg and other sources of financial information.
“Structures will become simpler; clients will not. Layering of fees through sophisticated structures will be challenged. Why put an investment into an endowment and then into an underlying product which invests into JSE Top 40 shares when you can often achieve comparable results at less cost by going direct to market?
“Tax and regulatory requirements make a more structured approach advisable in certain circumstances. If so, an adviser must be prepared to justify the solution and the added cost because the well-informed client is almost certain to challenge the arrangement.”
Explanations that don’t make sense and solutions that don’t create tangible benefits will again raise the issue of underlying trust in the professionalism of the adviser.
“KISS – Keep It Simple, Stupid – is making a comeback,” adds Tony Barrett. “Our industry must respect that or risk kissing clients goodbye.”
