Advice deal offers investors growth or their money back

A SCOTTISH firm of financial planners has launched what it believes is the first performance guarantee offering refunds to customers whose investments fall short.

The money-back initiative is under way just over a year before new rules come into force reforming the way in which financial advice is paid for, with a focus on greater transparency. But other advisers have dismissed it as a marketing ploy and questioned its value to investors.

The initiative is being pioneered by Create and Prosper Financial Services, a chartered financial planner based in Bo’ness.

It promises to refund investors their on-going fees if the investments recommended to them fail to perform.

The guarantee is open to clients making personal investments through the firm with the aim of achieving growth of £50,000 or more. Performance is measured every quarter and fees for that period are refunded if the investments have not increased over the quarter. The firm has set a target of refunding no more than 20 per cent of ongoing fees as a result of the guarantee. It has refunded less than 10 per cent of fees to clients piloting the initiative since the firm started business a year ago.

The guarantee was developed following feedback from clients fed up of advisers and fund managers making money even when their investments underperformed, said Graeme Inglis, director at Create and Prosper.

“There’s been a general view for some time that financial advisers get paid regardless of how their investments perform, and that the full risk of investing money is therefore borne by the clients themselves,” Inglis said. “There are also many people who feel that financial advisers don’t keep a close monitor on the performance of their investments, as they’ve already got their fees in the bag and there’s no real incentive for them to go the extra mile for their clients.”

He has called for advisers to be more transparent and provide better guarantees that their advice is the best option for the money. He said: “We’ve created a system where if they do not make money then we do not get paid – it’s that simple.

“Of course, it is in our interests to properly assess risk for our clients and to research the whole of the market for the most appropriate investment. “

The guarantee is believed to be the first of its kind. Inglis expects more firms to follow suit after the retail distribution review, coming into force at the start of 2013, places a new emphasis on fair disclosure of charges.

However, Iain Wishart, owner of Wishart Wealth Management in Edinburgh, suggested the initiative was a marketing ploy. “Investment is just part of a real financial planner’s remit. It is strange to offer a guarantee over something an adviser has no control over,” he said. “If 80 per cent is wiped off equities today then how good is the guarantee – who is the backer? There has to be third party risk.”

Tom Munro, owner of Tom Munro Financial Solutions, was also sceptical. “I believe that setting up yet another back-office process to monitor all client investments each quarter is both time-consuming and without doubt counterproductive. Clients in my experience do not thank you for sitting behind a desk engaging in this type of activity, preferring face to face discussions to find real solutions to their financial needs.”