Investors are turning their backs on advisers - thanks to new regulation intended to ensure the fair treatment of clients.
The Retail Distribution Review (RDR), which came into effect at the beginning of this year set out to promote transparency in the financial advice industry, but is having an adverse effect on investors, according to a new research conducted by GfK.
The survey revealed that although financial advisers are expecting to see a drop in the number of clients willing to pay up front for their services, they estimate they will only see a 14% decline - falling far short of reality.
RDR bans advisers from taking commission for selling products, instead instructing that all fees, paid only by clients, had to be agreed in advance.
In the past, advisers would not charge clients for advice, instead earning commission from asset managers for selling their products. Despite this creating a biased advisory environment, some investors prefer not to have an upfront cost for financial advice.
Of the 1.6 million consumers who have invested over the past five years, a million people chose to consult a professional adviser before handing over their cash.
However, the new research indicates that of those who took advice 340,000 will no longer be consulting a professional before investing.
Contrary to expectations, these investors have considerable portfolios too – with 20% of those attempting DIY looking at a pot of £100,000 or more. This does not correlate with the industry view that it is only those with a small investment pot that will be put off using a financial adviser because of the cost.
Martin Grimwood, GfK Divisional Director for Life, Pensions & Investments, said: “We already know that financial advisers have segmented their client base in response to RDR and the majority is offering differentiated services to retain as many clients as possible.
“What’s missing here however is the client perspective. With 34% of past customers saying they will ‘never’ pay for advice, our recent research shows that far more people plan to avoid fees than the IFA community expects.”
The research also revealed that those planning to self-invest prefer to contact a product provider directly rather than a fund supermarket – despite the initial discounts available through an online platform.
