My wife and I were in a supermarket when I spotted the proverbial “little old lady” reaching for a pack of sugar. Having just put sugar in our basket, I knew that the pack that she had picked up was more expensive than the other brand. I also knew that “sugar is sugar” and brand differentiation generally has nothing to do with quality, so it’s only about price. I showed her the other cheaper brand and replaced the one in her trolley. She thanked me most profusely and went on her way.

On reflection, what I had just done is not dissimilar to my activities as a financial adviser. Financial advice at one level is ‘assisted shopping’. In a much more complex financial services environment our task is to select the most appropriate financial product or service for our client drawing on our extensive skills and industry experience and naturally avoiding conflicts of interest.

There is another broadly equivalent ‘assisted shopping’ service provided by upmarket image consultants. These advisers analyse the industry you operate in, your target audience, your skin and hair colouring, and your body shape, (‘portly short’ in my case!). They then assist you to identify appropriate work and business clothing to suit these attributes.  Immediately, one now says; what is the role of the manufacturer of sugar on the one hand and clothing on the other in the transactions discussed? The answer is “none” A clothing factory in Goodwood in Cape Town would manufacture a huge range of purple and yellow shirts for a targeted broad market, but the image consultant may never select one of these their clients. Does it mean that yellow and purple shirts should not be made? The answer is absolutely not, unless of course, the shirts don’t sell at all.

So the role of the financial planner is to analyse the needs of the client and provide the most appropriate product ranging from risk to short term and long term investments. In the investment world, the Financial Adviser is not an asset or investment manager, the role is that of determining an appropriate asset mix in relation to the clients’ required returns and time horizons, putting the resultant asset mix to the client and discussing the anticipated volatility. Once the client fully understands the volatility the task is to place the funds with the most appropriate asset manager. FAIS of course has had a huge impact on the asset class selection.

Fearful of repercussions, Financial Advisers have erred towards the more conservative balanced funds rather than pure equity or specialist funds. Whether this centre seeking activity in limiting risk, even for younger clients with many decades to go to retirement, is good for the client is still to be seen over time. So what of the role of the asset manager? Well, its role is to put the product on the shelf. The asset manager generally is in no position to identify whether their fund is ‘good’ for every client, and indeed it would be most unfortunate if asset managers were to attempt to offer a one size fits all offering. The job of determining whether the purple and yellow fund is good for a particular client is the task of the Financial Adviser who has undertaken a proper needs analysis.

I sat bolt upright in bed that night!; “What if the little old lady was a stage two diabetic, short-sighted and looking for flour? Did I have an obligation in terms of the Assisted Shopping Services Act?”  

(This article was originally published in InvestSA)

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