This article is written by:

Tony Wickenden

Managing Director, Technical Connection

The Value of Advice

As Consumer Duty starts to bite, as if we needed to be reminded, the value of financial advice cannot be understated.  

As financial advisers, self-evidently, it is essential to demonstrate and evidence, the tangible benefit of your advice to your client. Essentially that the client is financially better off “with you than without you”. This should be the benchmark against which the value of your relationship is measured.

This article looks at 'Advice Alpha'—the measurable difference that quality financial advice makes in improving your client’s financial well-being.  

Additionally, we will examine the 'Trust Equation', a framework that measures the trustworthiness inherent in adviser/client relationships, detailing the equation's components, highlighting how it guides advisers in building trust and delivering value, in all areas of financial planning, including inheritance tax planning and the use of Business Relief solutions.

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What is Advice Alpha?

Simply put, as stated above, the measure of the value of the financial advice you have received is that, after paying for the cost of the advice, however you pay for it, your financial wellbeing has been improved.  

Let’s call this difference, this improvement, Advice Alpha. It has several contributors.  

These include: -

• Behavioural coaching

• Tax efficiency (on investment and withdrawal)

• Rebalancing

• Cost efficiency

When Advice Alpha is delivered, and its delivery appropriately evidenced and recorded, then this will materially contribute to the satisfaction of an adviser’s Consumer Duty responsibilities and especially the “cross cutting “rules.

Underpinning every great adviser/client relationship through which Advice Alpha is delivered is a great ‘Trust Equation’ score.  

What is the 'Trust Equation?'

So, what’s the Trust Equation? It’s a way to measure trust worthiness, the key component in all good adviser/client relationships.  It was developed by author Charles H Green who explained it in his two books, The Trusted Adviser and Trust Based Selling.  

There are four variables in the Trust Equation.  

Three of them increase a person’s trustworthiness: credibility, reliability and intimacy. The fourth one, self-interest, reduces a person’s trustworthiness.

Trustworthiness = Credibility +Reliability + Intimacy  

                                         Self-Orientation

Let’s look at each of those components in a little more detail.

Credibility

Credibility has to do with our knowledge base and the words that we speak.  

Are we knowledgeable about our subject? Can we back up our words with underlying knowledge and experience? We can increase our credibility by increasing our expertise, by being open about our expertise and by limiting our passing of judgement to areas in which we are capable.

When there is high credibility in an adviser /client relationship you might hear words like these: 

‍“I can trust what she says about pensions and inheritance tax; she is very credible on those subjects.”

Reliability 

Reliability has to do with actions. Can we be depended on? Do we do what we said we would do? Do we do it when we said we would do it and to the quality, we said we would deliver?

We can increase our reliability by doing what we’ve said we would do. Essentially “actions speak louder than words”. Reliability is demonstrated to be in existence when we say something like:

‍“If he says he will deliver the product tomorrow, I trust that he will do so because he is dependable.”

Intimacy 

Intimacy refers to the safety or security that we feel when entrusting someone with something like personal information, particularly about our doubts and insecurities and with our dreams for our future.

This is especially important in a healthy adviser/client relationship. Expressing vulnerability and being open about who we are as people helps build intimacy with others, which in turn helps build trust. The existence of intimacy in a relationship might be demonstrated when a client says: 

‍“I can trust her with that information; she has never violated my confidentiality before, and she would never embarrass me.”

Self Orientation

Self-orientation refers to a person’s focus ― in particular, whether the adviser’s focus is primarily on themselves, or the client.  

Self-orientation in the trust equation refers to our focus and how much we align to the interests of others. Self-evidently, highly self-oriented people are hard to trust as they are more interested in themselves than those they are working with. If people think we are more interested in our own goals than in theirs, then they are less likely to trust us and might be (understandably) concerned that we may seek personal gain at their expense.

Self-orientation is in evidence when we say something like:

‍“I cannot trust him in relation to the financial plan that has been put forward―I don’t think he cares enough about me, he is just focused on what he gets out of it.”

Self-orientation leads to lower trust. You can have great credibility, reliability and intimacy but the power of these will be materially diminished by high self-orientation.

How to score yourself

Being completely honest with yourself and with “5” representing the highest score and “1” the lowest, see how close you can get to 15 in relation to your client relationships. Essentially, you want “5” above the line and “1” below the line.

The importance of strong credibility, reliability and intimacy together with low self-orientation is of course relevant for every stage of the financial planning journey.  

What is needed to deliver reliability, intimacy, and low self-orientation is unchanged regardless of what aspect of the financial plan you are advising on, As are the fundamentals underpinning credibility.  However, the knowledge and expertise underpinning credibility required to contribute towards the various parts of the financial journey will of course vary.  

For all aspects of the estate planning part of the intergenerational planning challenge, credibility will come from the adviser having great and demonstrable contextual knowledge and specific know-how.

Contextual Knowledge

Contextual knowledge will incorporate a detailed and practical understanding of inheritance tax. This should incorporate the way it is now and, especially in an election year, the way it might look in the future, based on what has been stated by the relevant parties “on the record” (not merely rumoured) so far.  

Specific Know How

So how about Specific know how? In relation to specific knowledge of the client, it will be important to understand the extent to which the client requires to retain access to, and control over, cash and assets available for planning. This knowledge, together with a contextual understanding of how the gift with reservation rules work, will give the adviser a good basis to identify to what extent lifetime inheritance tax (IHT) planning may be possible.  

Understanding your client's objectives

Combined with this specific knowledge of what’s important to the client, there will also be a need to have specific knowledge of the solutions that will be appropriate to deliver on the ascertained client objectives taking account of their requirements in relation to access and control.  

Business Relief solutions should be near, or at to the top of the list, where a high degree of continuing control and access is important.  

Other financial products and trusts may also be considered. Pensions are super IHT efficient even though the main reason for contributing will usually have to do with the provision of financial security in retirement, immediate tax efficiency and tax-efficient growth.  

And let’s not forget the too often forgotten potential role for protection in trust to create legacies and meet any unreduced liability to IHT once you’ve concluded all the other planning referred to minimise tax through lifetime planning.  

In conclusion

By consistently securing a high Trust Equation score and delivering and evidencing Advice Alpha, advisers can significantly enhance how their services are perceived and valued by clients. This approach leads to satisfied clients who genuinely appreciate the depth and impact of the advice they receive and are more likely to make enthusiastic referrals to the adviser.  

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Opinions expressed represent the views of the author at the time of publication, are subject to change, and should not be interpreted as investment or tax advice.

Important notice: This article is for investment professionals only. This article is for information only and does not form part of a direct offer or invitation to purchase, subscribe for or dispose of securities and no reliance should be placed on it. No reliance should be made on this content to inform any investment of tax planning decision.

This content contains information that is believed to be accurate at the time of publication but is subject to change without notice. The explanation of all of the tax rules set out have been written in accordance with our understanding of the law and interpretation of it at the time of publication.

Whilst care has been taken in compiling this content, no representation or warranty, express or implied, is made by Downing LLP as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.