Eleven million investors consider financial advice too expensive and have fallen through the ‘advice gap’ following industry regulation.
The Retail Distribution Review (RDR), introduced in January 2013, set out to promote transparency in the financial advice industry. 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 – as this prices them out of the advice market.
Investors with a portfolio of £10,000 for example would understandably be unwilling to hand over a tenth of their assets for an initial consultation cost – whereas the old advice model which took cut of the profits along the way would be easier to swallow.
In a survey commissioned by Allianz Global Investors before RDR was introduced concluded that advisers would not find investors with a portfolio of less than £50,000 to be an attractive customer, and those investors could be left with no professional advice. This void was named the ‘advice gap’.
Initial investigations by consultants Deloitte predicted that RDR would create up to 5.5 million “disenfranchised customers who will either choose to cease using financial advisers or lack access to them”. In the white paper Bridging the Advice Gap published in November 2012 the findings continued: “These customers, who account for 11% of UK adults will represent a significant post-RDR advice gap.”
However, online consumer advisory business Wealth Horizon claims that Deloitte significantly underestimated the impact of the advice cap – by 50%.
“Our research has revealed that there are currently 23 million investors managing their own portfolios, of which 39% of them – 11 million people – say that the service offered by financial advisers are too expensive,” said chief executive Chris Williams.
