Here, Dynamic Planner Proposition Director Chris Jones talks about client understanding: how to achieve it, the dangers of failing to achieve it, misconceptions, lessons from his time in the sector and, in a wide-ranging interview, what shape he believes financial services is, as an industry, in today


Q: To begin with and to help set the scene – what, in short, Chris have advice firms had to do differently post-MiFID II?

A: Fundamentally, post-MiFID II, advice firms have to give clients a suitability letter before they execute a trade. They also have to assess the suitability of a client’s investment at least once every 12 months. However, the actions required of platforms and discretionary managers – to disclose valuations, falls and charges more explicitly in £’s – indirectly results in advisers needing to do things differently.

Q: How does the FCA really want client understanding to improve today?

A: Over the years, there have been various regulations and the perception of what firms must do and provide their clients with has built up, often without the removal of legacy content. More generally, over the last 10 years or more, there has been a shift in responsibility from the buyer to the seller to explain understanding.

This can lead to firms providing clients with, for argument’s sake, a 40-page long recommendation letter, containing lots of complicated, technical wording, aimed more at a lawyer than the actual client.

However, virtually nobody understands a very technical 40-page recommendation letter. In that sense, we have moved from a world which was all about complexity and minute detail and very quickly to a more modern concept of sellers understanding their clients and to client understanding. To shift the onus of that documentation to focus upon client understanding is massive and refreshing. Of course, in financial services, if a client doesn’t understand the advice they are given, they shouldn’t take it.

In reality, I believe advisers are very good at explaining to their clients why they should make an investment or what has happened to their portfolio in the last 12 months.

But then there is a natural danger for firms to follow-up that face-to-face meeting with a more formal report, which includes paragraphs of information the firm feels it must include from a regulatory perspective. But what if it doesn’t match what was spoken about more plainly face-to-face? If a client then makes a complaint about the firm, the evidence they are going to base that upon is of course the report, not the conversation they had with their adviser.

What you have to think about is what the client understands when the adviser is no longer in the room – what are they actually left with? The answer to that can feel scary, because as soon as their investments go down in value, clients are going to perhaps ask their adviser questions and also ask themselves questions.

Q: Are there common industry misconceptions, do you think, around client understanding?

A: I think you have to consider that education and understanding are two different things. Do firms need to educate their clients to the point that they understand investments as much as their advisers do? The answer, for me, is no they don’t.

You could use an analogy of going to see your doctor. They will tell you, for example, why you need to have a procedure, what it hopes to achieve, how long it will take, what could go wrong and what would happen then. They can talk you through the process and you, as a patient, understand all of that. You don’t need, or arguably want to know, the chemical formula for the anaesthetic, how it works or the Latin names of everything operated on.

There is, I believe and as we have already touched upon, a perception among firms of what they must do. But that is arguably weighing down on them and holding them back when it comes to achieving real client understanding.

I believe advisers naturally are very good at helping their clients understand their investments. Hopefully, the FCA’s focus on client understanding only enables firms to do the job they want to, which is help their clients.

There is also the issue of addressing the disproportionate availability of information today in the Google age we live in. Any client of a firm today can go onto Google and find out all sorts of information about investments and markets, but they’re not necessarily getting the full story from that. We’ve gone, in short, from a situation where the adviser had all the information – and that was valuable to the client – to one where the client can access all the information. What they instead want from advisers is insight to give the information meaning from a professional and expert perspective.

Q: What do you think clients really want to know when they have an annual review?

A: I believe that most end clients spend little time thinking about what we do, so they only really wants to know about things that affect their lives – like, ‘Am I alright now – and am I going to be alright in retirement?

‘Am I in a good place financially? Do I need to take action? If so, what action? Did I make the right decision, as a client, choosing you as an adviser and firm? Did I choose the right funds to invest in?’

I believe that if you answer those questions sufficiently –the client does not require anything more complicated than that.

Q: What are the dangers for firms of failing to ensure client understanding?

A: It may not be actual regulatory requirements that impact firms the greatest – rather complaints or simply clients cancelling their advice service.

Now that PPI complaints are ending, we are beginning to hear advertisements for investment complaints. An investment complaint has not been worth making when investments have been going up, but this changes if the go down.

Previously, clients have largely been happy because the value of their investments have gone up. Few clients will have taken the time and trouble to really understand the mechanism to cancel a service charge or explore moving to a new firm. But if bad news starts landing on their doormats, that could motivate them enough to find out how to cancel a service of look for another adviser.

This loss of clients impacts the income of an adviser and the business. On top of that, firms can lose out because the one per cent, say, they are earning off their assets under management drops if markets downturn – and that is before they face paying out if complaints against them are upheld. Regularly ensuring and checking client understanding mitigates this risk.

Q: What would be your top piece of advice to a firm today?

A: My advice would be to embrace regulation and continue to work harder on communicating with your clients on the softer, more emotional aspects of advice to ensure real client understanding.

On the other side of the coin, you may not need to invest so much effort on delivering technical information to clients. Get the balance between the two right. Ultimately, people who win the people battle will win.

There has been arguably a growing culture of pinning an adviser’s value on their ability to find that one amazing investment, which outperforms all the rest – or perhaps a very low-cost way to invest lucratively. Ultimately, there can only ever be one winner in those scenarios and the chances of a firm achieving that are really slim.

If you focus all of your efforts as a firm on that and forget how your clients feel, how they behave and how they interact with financial services, then you will not win. And, yes, I get that firms and advisers want to be trusted and want to have that credibility with their clients. But I would argue they already have that. Advisers today are highly qualified professionals and have access to lots and lots of information through services like Dynamic Planner, which is enormously credible. Focus on the other side of the coin, otherwise you risk losing that balance with the client.

Q: What would be your advice to someone new entering the industry today?

A: This might perhaps seem like a very mathematical way of offering advice – but in the same way that we understand compounding and how investments can grow, then that’s how your career can take off in financial services.

If you’re an adviser, then the first time you go out and meet a client it will inevitably be difficult – and you will have lots of similarly difficult meetings before it gets easier. When you go back and see those clients again at their annual review, you will begin to engage those clients and earn their trust. Unfortunately, many young advisers are tempted in the second year to change firms before they see the benefit of this.

It seems that if you can reach year three as an adviser with the same firm, people start to give you referrals and or have more money to invest. If you leave a firm before that, the process can start again and you can get stuck in a job-changing cycle.

Q: What’s the most important lesson your time in the industry has taught you?

A: This is a personal lesson. I have always been a very technical person and I was always the boy growing up who would take things apart, so I could learn how they work and how to put them back together. I, for example, had the industry qualifications long before they were needed.

I remember many years ago giving advice to a friend, who was sufficiently candid to say, ‘Chris, you’re far too technical. I don’t need to know all that stuff. I trust you. I understand what you’re saying. But you then just told me lots of information that didn’t really matter to me’.

I realised that being very technical wasn’t helping the end client to decide to invest. Looking back, I can see that because I had worked very hard to learn all this information, I wanted to share it.

Today, all advisers have to be Level 4 and many are now chartered. They will have worked really hard to achieve all of that knowledge, so they want to tell someone about it – your clients. But, ultimately, it can be a mistake. Successful advisers understand how to achieve the right balance between presenting information to clients and connecting with them on a more personal level.

Q: Do you believe financial services, as an industry, is in a good place today?

A: Yes, I think it is. But it could now be facing an interesting test, because, after a long period of growth, the industry has to be ready for a period when investment returns are disappointing. We have to find a way, despite any downturn, for people to remain invested. We can’t have them abandoning the concept of financial services, because the alternatives are worse.

I think the industry is better equipped than it was in 2008, with Dynamic Planner, for example. I think we have a better understanding of behavioural psychology and have embraced technology to a good point. I also think a new breed of professional coming into the industry has helped drive those trends and subtly pushed existing industry professionals to do the same. That older guard have adopted new ideas.

I believe financial advisers are resilient and can pivot quite quickly, should they ever have to. Therefore, I think overall people within financial services today have better tools to do their job well. It may be that after an easy time with markets, they now need to revisit and hone the latent skills they already have: understanding complex things and explaining them simply to the client could prove to be a key skill.