KPMG warns of stark challenges to adviser charging
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KPMG has warned of “obvious and stark” challenges to adviser charging, as its research reveals that many consumers are unwilling to pay for financial advice.
The company surveyed over 3,000 consumers and found that over two thirds would not be prepared to pay for an hour’s worth of financial advice.
The majority of those that were to prepared to pay thought that an hour of advice should cost £50 or less, and only 1 per cent of respondents were prepared to pay over £200.
One in five were prepared to pay for an in-depth review of their finances, but many said that £250 would be the limit they would be prepared to pay for such a review.
Partner in KPMG’s RDR practice Fiona Fry says: “Many consumers do not use or understand financial advice and are largely unwilling to pay for it. The challenges here are obvious and stark. Whilst wealthier individuals with complex financial needs are likely to continue to need and be willing to pay for advice, how mass market consumers will be served is far from clear.”
Fry says firms need to be clear about their adviser charging strategy in order to compete profitably post-RDR.
She adds: “The UK’s consumers are very independently minded and clear about what they want, including professional advice for little or no fee. These factors will come more strongly to the fore once the RDR is in place.”
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Readers' comments (4)
Frank Dennis | 27 Sep 2010 2:52 pm
Non of the Executive at FSA are available to us by email (so much for opennessand accountability) - so any consultation has it deadlines set by them and the methods by which we are consulted. I attempted to complete an online "consultation" and after i hour gave up because I had to complete fictitious answers to one question about costs to our business (unknow at that stage)!) or be prevented from continuing to the next question.
The following additional comments from and about the same KPMG report illustrate that the FSA either do not conduct research or do not care about the harm RDR will do to this industry. (If anyone knows Lord Turners email please publish it !) - that way he might be comprehensively informed about what IFAs actually think about RDR.:
"However, despite the fee issue potentially driving consumers and advisers apart, the report also establishes 50% would trust IFAs the most for financial advice, significantly more than banks or insurance companies.
Fiona Fry, partner in KPMG's RDR practice, believes the research once again underlines the importance of preparing properly for the huge changes about to impact the industry.
She says: "Many consumers don't use or understand financial advice and are largely unwilling to pay for it. The challenges here are obvious and stark.
"Whilst wealthier individuals with complex financial needs are likely to continue to need and be willing to pay for advice, how mass market consumers will be served is far from clear."
David Ingram, technical director of support services provider threesixty, believes the research reinforces the weaknesses of RDR.
"The research emphasises the fact that the FSA have got it all wrong and consumers don't want to pay to have to see an adviser," he says.
"Regulatory change is widening the gap between those who can pay for advice and those who can not.
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Anonymous | 27 Sep 2010 3:34 pm
Its a pity that certain people didn't listen to the industry who said that the public wouldnt pay fees.
But then again the FSA are run by people who earn way in excess of the national average salary and are dont live in the real world.
Bring on RDR !
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Harry Katz | 27 Sep 2010 5:22 pm
This of course is plainly nonsense. The report said that 2/3 would not pay a fee, but that implies that 1/3 would and if you work out how many people that encompasses – using the working population – that is a very significant number of people – more than enough to keep us all busy.
Moreover KPMG are themselves involved in providing (amongst other things) pensions advice and you can safely bet that their hourly charge is rather a long way removed from £50. If they can charge (say) £400 per hour it certainly leaves us with plenty of scope.
All in all we should by now be heartily sick of these so called consultants. We see quite enough of their nonsense through their work (if you can call it that) with the Regulator.
Oh and by the way – how much did they get paid and by whom, for producing this report? These darlings certainly don’t work for free.
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Phil Castle | 27 Sep 2010 5:45 pm
I am not Pro RDR, but I already work on adviser charging. Some clients will do this by commission offset, some by an adviser charge deducted from the contract (there is a difference) and some pay a fee by cheque.
We rarely if ever charge hourly rates, preferring to charge fixed fees for a particular bit of work or a % of what we are advising on.
Our clients, most of whom are NOT High Net worth by any means, DO pay fees if it is explained properly to them, both for transactional work and on a retainer basis for an agreed level of ongoing service. The vast majority will pay much more than £50 and as our starting conversation for most services is a minimum £150, if after mentioning that figure the potential client is not willing to pay, then really, we don't want them and they need to be managed out of the office as quick as possible.
The KPMG research is flawed from the start in that whilst it has surveyed 3000 people, it says itself " Many consumers do not use or understand financial advice". So they are surveying people that do not even know the benefits of having an adviser! A survey which looked at those WITH an IFA compared to those without might actually be able to draw some conclusions about what people might actually do in both circumstances and whether there is value in encouraging more people to seek advice. The sample KPMG have taken sound like the majority are not existing clients and as I believe most advisers are already near capacity and if RDR reduces adviser numbers, this will actually mean even fewer people get advice and will not even get the CHOICE of finding out the value of paying fees that the survey implies they are not willing to pay though lack of knowing the value of advice.
My point is RDR needs a rethink and the deadline for most parts of it putting back long enough to truly understand the implications of increased quals resulting in advisers leaving and whilst I'm happy to see the end of commission and payment which is not related to a direct reduction from an investment, further thought does need to be given to what has happened since the effective removal of commission on regular savings (stakeholder) and the need for some kind of factoring in order to encourage long term saving again as fees don't work well with regular premium business, hence the FSA's acceptance that adviser charging should not read across in it's current form to protection business.
In my opinion, adviser charging could work on both regular premium business and on protection, but some form of factoring does need to be agreed as an industry standard and ironically the butchers muddle proposed under RDR will only benefit the banks and direct providers and the top end dealing with HNW clients, when a little more thought could result in adviser charging working for all and the Independent Sector in UK developing in to Europe instead of vice versa with European model of bank tied advisers coming to dominate the UK to the detriment of Joe Public.
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