Anti-adviser climate bad for clients – Absa Investments

Mark Kitching head of Linked Investments at Absa Investments

Recent regulatory changes may have an unintended consequence – encouragement of an anti-adviser climate of opinion that could ultimately be bad for consumers and their investments.

The alert comes from Absa Investments, a company that sees continuing and significant value in client-adviser relationships that are underpinned by professionalism and ethical practice.

Concerns have been prompted by a possible overreaction by some clients to enactment of the Consumer Protection Act and amendments to the Financial Service Board’s code of conduct.

As advisers are well aware, the FSB’s new conflict-of-interest clause outlaws inducements that may sway an intermediary’s advice or actions.

“Unfortunately, there is a risk some clients may see recent safeguards as a signal that advisers don’t add enough value and they can be cut out of the investment selection process, says Mark Kitching head of Linked Investments at Absa Investments.

“In reality, recent changes mean clients can consult professionally qualified financial advisers with greater confidence than ever before.”

The long-term loser in this situation could be the consumer.

Kitching adds: “Should clients forego the services of a knowledgeable adviser, our concern is that poorly informed decision-making on investment selection and portfolio adjustments might result in under-performance.”

Absa Investments has noted a tendency among some clients to enquire about purchasing investment solutions direct from the product provider.

“The danger,” notes Kitching, “is that where needs are complex or understanding of risk is incomplete, the selected product might be ill suited to a client’s objectives. DIY sometimes leads to highly unsatisfactory results.”

He says recent changes simply emphasise the need for high professional standards while ensuring greater transparency of fee structures and incentives.

“New laws have little effect on how ethical investment companies and professional advisers already work,” says Kitching. “For Absa, very little changes.

“Legislation helps to curb abuse among a very small minority. What legislation can’t do is outlaw investment complexity. Regulation cannot banish risk and standardise all solutions so each investment is ideal for everyone.”

In his view, the services of a professionally qualified and knowledgeable adviser can be vital in ensuring needs are correctly identified and financial solutions are properly aligned with a client’s objectives and risk profile.

Absa Investments believes optimum results accrue when a client and adviser work as a team to get that fit right – and then regularly review arrangements to ensure continuing relevance.

“This is the reason AIMS works so readily with advice professionals,” adds Kitching. “Informed decision-making has the potential to build long-term wealth. That is the shared goal of clients, advisers and product providers. We should never lose sight of that.”