Advisers urged to avoid ‘mediocre’ managers

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Financial advisers need to avoid “benchmark mediocrity” or risk losing their clients, Heathcote Investment Partners director Clayton Coplestone says.

Thursday, October 27th 2011, 5:00AM 1 Comment

by Niko Kloeten

The former Credit Suisse investment banker, who has written several books on finance, told Good Returns the financial services industry will come under cost pressure in the next few years as consumers start to demand better value for money.

He said financial adviser fees would be tested and advisers would have to prove to consumers that they were adding value.

Heathcote, a marketer and distributor for a handful of boutique fund managers, is running a "meet the managers" forum next month and Coplestone said the response to the event highlighted the growing divide in the advisory industry.

"The people we have attracted are mainly advisers who have little or no institutional alignment who are looking to add value and build a more robust value proposition for their clients, and as a gross generalisation they tend to operate in a more sophisticated client base.

"The industry is becoming polarised - you've got advisers who are institutionally aligned who tend to rely on the gatekeepers, and then you have the non-aligned advisory community."

He warned advisers about fund managers that use index benchmarks which promote "mediocre" performance and are "meaningless" to consumers, who use bank deposit rates as their yardstick.

"As an investor I don't care about growth versus value or how much property I've got, what I care about is that I could have got 4.5% in the bank.

"You go to the investor and say, ‘it's been a difficult year and markets are down 10% but we've done well, we're only down 8%, we're going to take our fees now.

"The consumer says I've lost 8% and another 1.5%, that's 9.5% and I could have left it in a term investment."

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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