Would you pass the L'Oreal test?

30 March 2021

I have never bought a L’Oreal product but judging by the advertising I am guessing it is at the more expensive end of the market for making us look even more beautiful.

The tag line ‘Because We’re Worth It’ is memorable and the success of a more expensive product is of course down to the consumer perception of value.

If the consumer gets value from the cost of buying the product they are more likely to stay loyal and buy again.

Financial services are not much different in price offerings. To pay for a high-quality financial planning service a client needs to pay for it. The fact that many people don’t is an opportunity. But can you pass the L’Oreal test? When the potential client says, how much is that going to cost me, you want to feel confident that the answer does not frighten them off. Are you worth the fee?

Increasingly we see advisers focusing more on detailed financial planning in addition to the traditional recommending of financial products. All the work that goes into the financial planning service might be considered Advice Alpha – the phrase now common parlance for the value financial planning adds compared to a DIY approach.

A good way to illustrate that in pictures to a client is to do a before and after cashflow model:

  1. Current situation before advice – your financial future looks like this

  2. After my advice – the prospects for your financial future look like this

The difference between the two is likely to be a multiple of the fee you would like to charge. Sure, cost of products and selecting funds is relevant but the value added by the financial planner is more likely to be perceived in other areas:

  • Spending and drawdown strategy (including management of decumulation risks)
  • Managing tax allowances
  • Financial education
  • Asset allocation
  • Re-balancing of the assets/plan
  • Behavioural coaching

All of these areas of advice add great value to clients and much of it will be either new or at least very illuminating for clients. I was chatting recently to Tony and Phil Wickenden of Technical Connection and Ad Lucem respectively about some research they conducted on behalf of Sanlam. We found that even amongst advised investment clients 63% wanted more information and engagement about tax.

What an opportunity that represents. I wonder if sometimes there is a worry that giving away too much information is giving away your value, but that’s the point of what a client pays for isn’t it? Clients value being educated and the more educated they are, the less likely they are to make silly mistakes. The old rule of ‘a little knowledge is dangerous’ is very true, and many of us will have met people who are in that category and like to boast of their success in managing their investments, whilst totally oblivious to the mess they have made of tax and pension arrangements.

A good example of the knowledge gap is in use of onshore bonds. From our research we discovered that only 17% of advised clients have ever had a conversation about bonds. Bearing in mind the significant tax features, this is surprising. It does not take long to work through some simple examples to illustrate where bonds can have advantages. If you have clients in the 40% and 45% tax bracket then it is time to dust off your top slicing guide.

At Sanlam we have certainly seen an uptick in enquiries about onshore bonds over the last six months, and it seems that advisers are starting to lose their inhibitions about a product that was historically synonymous with some bad practices. For our clients we need to move on from that and focus on delivering value, and you can be sure the tax knowledge you have to help clients navigate their future will help you pass the L’Oreal test.

Sanlam’s open architecture onshore bond allow you to replicate your centralised investment proposition across all wrappers for your clients. The results are greater consistency and a straightforward way to manage different risk profiles as tax efficiently as possible.
Find out more

Lawrence Cook
Head of UK Intermediary Distribution

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