Value for money
The Fowler Drew value proposition was at the very core of our original concept: to provide institutional-grade solutions to complex retail investment problems and to do so at institutional cost levels
Why value for money matters
You can expect to hear much more about the concept of ‘value for money’, or VFM, in investment services. The industry’s regulator, the FCA, has made it one of its key themes. One of its first initiatives is to require collective investment funds (so-called unit trusts or OEICs) to publish a ‘value for money statement’ annually. A similar initiative is being planned for workplace pension schemes. It forms an important element of the FCA’s new Consumer Duty, in place since October 2022, intended to strengthen the standard contractual duties of care, even if stopping short of a fiduciary duty.
The intention is to nudge individual savers and investors towards being value-conscious. The FCA believes UK consumers’ typical inertia and lack of interest allows financial services companies to charge too much for too little – or for things they do not need or (worse) are not genuinely providing. Direct action on regulated firms in a free market can only go so far. Well-informed and discerning consumers will always be the most effective discipline on product and service providers. Thus the practical impacts of the Consumer Duty are expected to be delivered via information flows and their standards.
Value for money delivered by a collective investment fund is not the same as the value delivered by an investment service, like wealth management. Some of the service value comes from the products used but much comes from individually-experienced attributes like service quality and the sense of well-being generated by the relationship between manager and client. And because you won’t know till after the event what the investment performance has been, this material aspect of value for money cannot be reliably assessed before the event.
As part of our preparation for the new Duty, we prepared a paper for clients setting out a theoretical basis for assessing value for money in a holistic wealth management service, as well as listing potential sources of benefit that clients could weigh up for themselves.
Our value proposition was clear from our original concept of filling ‘a gap in the market’: institutional-grade solutions at institutional prices.
It shows today in our total investment costs compared with typical costs in retail investment services. Fowler Drew clients can expect to pay all-in between 0.7% and 1.1% pa compared with typical industry costs of 1.0-2.5% pa. (The breakdown is here: All-in costs.)
‘Cheaper’ comes from leaving out activities that are not good sources of value or are prone to be destructive of value. It also comes from using technology to perform more of the work. But cheaper does not prevent the solution also being ‘better’. This is because of what we do that competitors are not doing:
- None offers fully-customised goal-based portfolios with quantified outcomes and can measure (by modelling) progress towards those outcomes, including resource requirements and confidence levels.
- Few if any genuinely integrate continuous financial planning with the management of the portfolio or can demonstrate a formal, mathematical link between portfolio and plan.
- Competitor costs at the high end might be explained by their choosing to use expensive underlying investment holdings.
Assessing value: our explainer video
You need to form their own judgement as to which of these service attributes, those conventional managers focus on and those we do, provide more ‘value for money’. Our video, How to assess the value of your wealth manager‘, will help you. This ranks the different activities of managers on three factors:
- Usefulness: their importance in explaining outcomes
- Cost: the costs incurred by the provider of the activity
- Predictability, in other words how manageable and hence how reliable the benefit.
Using this framework we demonstrate why our value for money rests on high-importance, low-cost elements, helped in all cases by the use of decision technology to reduce the costs that would otherwise be associated with a high degree of customisation.
Clients, when they understand this, derive soft benefits from the focus on importance for outcomes and reliability. That’s why the testimonials throughout the website speak so often of peace of mind, composure and ease of decision making, rather than just a reasonable cost.