When looking for a financial adviser, should you be put off by the fact that a firm is small? Absolutely not, says ROBIN POWELL; it may well be a positive. There is, of course, no hard-and-fast rule that small advice firms are superior to larger ones. But small, independent firms often provide a more personal service and better value for money.
Something that small advice firms like rockwealth Brighton often hear from prospective clients is, “I like what you’re offering, but I would prefer to deal with a larger firm.”
It’s a perfectly understandable comment. After all, most of us are attracted to big brands. Whether it’s food or clothing, we’re more likely to buy from a company we’re familiar with than one we’ve never heard of. Even if it means paying twice as much for, say, a well-known brand of pain relief tablets than an “own brand” version, most people don’t bat an eyelid.
If anything, this assumption that bigger must be better is even more common in investing and financial advice. People assume that a firm with a household name must provide a high-quality service. They think, for example, that because of their global reach, multi-national businesses have the potential to deliver superior returns. A familiar brand can also provide a sense of security; investors think that their money is somehow safer when invested with a firm that has tens of thousands of employees worldwide.
Appearances are deceptive
Alas, it’s not that simple. The old adage that appearances are deceptive is never truer than in financial services. The fact that a firm has eye-catching adverts featuring a popular celebrity doesn’t make it worthy of your trust. Sponsorship of major sporting events doesn’t cut it either.
Of course, big financial institutions invariably have much more lavish premises than small advice firms. Clients enjoy visiting their high-rise offices with stunning views of London, not to mention lunch in the boardroom. But the question is, does any of this translate into better investment returns or a higher standard of advice? The answer is an emphatic No.
Another argument that large institutions like to make to win new business is that they have access to information that smaller firms don’t. They also claim to provide their clients with products and investment opportunities that aren’t generally available. Selling points like these sound attractive to wealthier investors who naturally want the very best solutions. In practice, however, they’re effectively worthless.
Complex or simple?
Another misconception is that investors with more assets need to invest in the complex funds and strategies that large organisations often specialise in. Indeed, investing in this way and incurring the higher fees they invariably charge is likely to lead to lower cost- and risk-adjusted returns than a globally diversified portfolio of passive, or broadly passive, funds.
As the financial planner and writer Ben Carlson wrote recently, “You don’t have to reinvent the wheel simply because more money is at stake… From a portfolio management perspective, managing more money just means a few more zeroes. If anything, the bigger and more complex your finances, the simpler your investments should be.”
Beware the consolidators
Something else to bear in mind before engaging with a large firm is that it may have shareholders whose interests aren’t aligned with your own. Several nationwide advice firms are owned by fund management companies, who will naturally prefer to recommend their own products. Other big advice chains are part-owned owned by venture capital firms, who inevitably want to see a healthy return on their investment. So, for example, they benefit from higher fees and charges, but clients clearly don’t. On the contrary, higher costs usually translate into lower returns.
A notable trend in recent years has been an increase in consolidation in the UK financial advice market. In other words, large advice chains are buying up small advice firms to increase their assets under management. In theory, the economies of scale should benefit consumers. But, in many cases, the first thing consolidators do when buying a smaller firm is to increase the fees and charges that clients pay.
There are also distinct benefits which small advice firms offer that larger ones often don’t. At rockwealth Brighton, for example, we offer a much more attentive and personalised service than most big firms do, and we devote more time to individual clients. We really put an emphasis on getting to know the client and building on that relationship over time. And we also provide greater flexibility than our larger rivals.
You certainly shouldn’t be put off by a firm because it isn’t listed on the FTSE or because you never see it advertised in the Sunday Times or on the side of taxi cabs.
In the world of advice, small really can be beautiful.
PLEASE NOTE: The value of investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks and commitments. This article is not personal advice based on your circumstances. So you can make informed decisions for yourself we aim to provide you with the best information, best service and best prices. If you are unsure about the suitability of an investment please contact us for advice.
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