Millions could lose out on financial advice in 2013
Up to 5.5 million people who are unable or unwilling to pay advice fees could fall into a 'financial advice gap' next year, according to an accountancy firm.
When the Retail Distribution Review (RDR) comes into force on 1 January 2013 financial advisers will no longer be able to take commission from product providers as payment for their work. Instead clients will be asked to pay an upfront fee and there are fears this will turn people away from receiving advice.
Research by Deloitte has found that a third of customers may try to manage their own finances in future to avoid paying for advice.
Fees will vary from adviser to adviser, but research by Deloitte found that financial advisers will typically charge around £105 per hour. According to Aviva, 39 per cent of advisers expect to charge between £101 and £150 per hour.
However, a Deloitte survey found the average client is willing to pay just £70 per hour.
Dennis Hall of Yellowtail Financial Planning moved to a fee-based service six years ago and says that it has been a process of trial-and-error to get to an arrangement that his clients feel comfortable with. Hall says an hourly rate was the most disliked method of payment, as it does not encourage clients to come back regularly.
"It is an open-ended commitment and is too in your face," he says.
Instead Hall charges a percentage of assets under management; ironically the set-up most popular and yet most similar to a commission structure.
Seb Cohen, head of insurance research at Deloitte, thinks it could be a worrying situation if clients with insufficient knowledge of finance move to 'do-it-yourself' advice and says there will be a gap in the market.
"The challenge and opportunity for banks, insurers and fund managers is to bridge this gap by developing business models that allow them to deal directly with customers and by offering streamlined, lower-cost advice," he says.
This article was written for our sister website Money Observer
A financial adviser who is not tied to any financial services company (such as a bank or insurance company) and is authorised by the Financial Services Authority (FSA). They can advise on financial products to suit your circumstances. All IFAs have to give consumers the choice of paying by fees or commission and have to explain which would best suit the customer in that particular instance. Also, if commission is paid either by the client or the financial service provider recommended by the IFA, the IFA must disclose what that commission is.