Calls for greater transparency are ten a penny these days, and on the face of it hard to argue with. Who wouldn’t want greater transparency? Whilst I think it will help, I’m not convinced that it is really more than a tool to achieve an objective we’ve lost sight of.
The objective is probably one of two things; understanding or trust. Some clients need to understand what the hell is going on before they are prepared to commit to their financial future, others just want to be able to trust their adviser without worrying about understanding it all. Good advisers achieve this already. Transparency is a poor proxy for understanding and trust and we are gravely mistaken when we believe that it will achieve instant results. This is because it is such a loose term, and entirely open to abuse.
Calls for transparency on platform charges are fair but won’t achieve much. That’s because advisers right now are using transparently charged wrap platforms, ‘white labelled’ with extra charges on top which they skim off into their own back pocket. The charges, and where they go are transparently laid out in key features documents and, in theory, explained to the client. Transparency presumably doesn’t extend to explaining to the client that they are being scammed, and the same investments could be added to the same platform for 10 or 15 basis points cheaper, or that their platform selection was motivated by a vague promise that they might be bought in future if they put enough assets on.
I asked an adviser how he justified this some years back. He answered, angrily, that “everyone is ripping everyone off, Gordon Brown is doing it, why shouldn’t I?” I think the question was rhetorical. Transparency is worthless without the means for fair comparison. This adviser could not be trusted, had no consideration for his client’s best interests. He was very transparent. You can transparently mug someone.
The current calls for transparency on fund charges are entirely justified, but will only really change investor attitudes if they can understand what the hell these charges mean and whether they are reasonable. This requires the standardisation and simplification of charging structures, and some objective benchmarks for comparison. I’m pleased to see this idea start to gain traction, but it will require firm and prescriptive regulation.
Transparency is a valuable tool for the diligent adviser, who accepts fiduciary responsibility for the safekeeping of his clients money from forseeable harm. Unfortunately, too many advisers still turn a blind eye to this and prefer to collaborate with platforms or fund managers for their mutual benefit rather than that of the client. It’s important that we admit this. It’s important the regulator speaks clearly as to it’s views on it. And acts on it.
I don’t recall platforms making the national press at all over the past 10 years. My suspicion is that the first time it does, it will be another scandal about money exchanging hands behind the scenes between manufacturer and adviser, another consumer rip off. It will undo any good work the RDR will have done to instil trust in the public. What they will understand is that there is no real transparency in financial services. That nothing has changed.