Half of investors to refuse advice post RDR

Fee-based charging structures will reduce the number of investors getting professional financial advice, new research from Deloitte suggests.

 The latest survey of more than 2,000 people by YouGov on behalf of the business advisory firm shows that more than half – 54 per cent – of consumers would refuse financial advice if they were charged a fee while 47 per cent said they would see an adviser less frequently if they were charged between £400 and £600. 

More worrying still is that 84 per cent of people are unaware that they will have to pay a fee for advice when RDR is implemented.

The Retail Distribution Review (RDR) is aimed at getting a better deal for consumers by putting a stop to practises which appear to put the interests of fund managers and intermediaries – rather than the investor’s – first.

Rule changes mean that advisers will no longer be able to receive payment from asset managers for recommending their products and instead must have a more transparent, up-front structure.

However, far from helping consumers, Andrew Power, lead RDR partner at Deloitte, says that the measures are likely to mean that fewer investors get proper help with their investment decisions.

“Financial advisers will be required to charge their customers a fee for advice rather than being paid by commission,” he said. “Deloitte’s research indicates that many consumers, particularly in the mass market, are unwilling to pay such fees.”

“As a result, the advice gap – the shortfall between the amount of advice required and that provided – is likely to increase as advisers leave the industry or focus on wealthier customers.”

Estimates vary but research from the FSA suggests that 8 per cent of IFAs could leave the industry when the RDR comes into play. This is way off the estimates of Rathbone's chief investment officer Julian Chillingworth, who thinks the figure will be closer to 50 per cent.

It’s not just consumers and their advisers who are going to lose out however; according to Power, the industry as a whole is going to have to commit more resources to making sure investors get the advice they need.

“These changes pose a huge challenge to banks, building societies, insurers and asset managers who will have to find new ways to distribute their products, and advisers who will have to persuade consumers of the benefits of paying for financial advice,” he explained.

Seb Cohen, head of insurance research, added: “Deloitte’s research highlights how consumers generally are unwilling to pay a fee for advice, but the figures vary between channels. Customers of banks and insurers are less likely to pay for advice than the customers of IFAs, and the lower the level of savings a consumer has the more likely they are to reject paying an advice fee.

“This is important because our research also highlighted the low level of savings among consumers. Nearly a third (29 per cent) save nothing each month, nearly a fifth (17 per cent) have no cash savings and almost half (45 per cent) do not save into a pension.”