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Chris Budd: Consumer press should show other side of the RDR coin

Chris Budd MM blog

It seems to be generally accepted that an unintended consequence of the retail distribution review will be a significant and potentially damaging drop in the availability of financial advice to the general public.

As banks realise that setting high targets to sales forces, earning large initial commissions and then paying most of it back through complaints is not a sustainable business model, one by one they are deciding this business is not for them.

At the same time, IFAs are moving (being driven?) to a relationship based advice model, which requires investment in both themselves and the client. Anecdotal evidence would suggest a significant number of IFAs have left or are about to leave the industry.

So, does this mean there is a reducing need for financial advice? With an ageing population, increasing debt and ever increasing importance of pensions and savings, good financial advice has never been more important. This would be further evidenced by the proliferation of websites such as This is Money.

Ah. The Daily Mail’s online source of financial advice. At a time when the general public are increasingly less well served for financial planning advice, the existence of websites such as This is Money, providing no nonsense, simple advice to the general public, should be welcomed.

Should be. On the 9 October, This is Money ran an article with the headline The Rise of the DIY Investor: Millions plan to drop their financial adviser when upfront costs rocket next year. The article went on to extol the virtues of Axa Wealth’s new direct-to-customer service.

To my knowledge no-one has suggested advisers’ costs are going to rocket upwards, indeed the pressure is precisely the opposite. It is the method of payment that may be changing, not the amounts.

Personally, I welcome the idea of direct-to-customer advice. For all its faults, there would be millions of people without life assurance if it was not for life assurance salesman, or upfront commission. If an organisation can provide professional advice coupled with the selling of an appropriate produce, not only would I welcome it, but my company would actually refer clients to it who are not suitable for our advice model.

It is essential that all parts of the industry work together. As the comments below the article prove, the general public is only too happy to have preconceptions of financial advice confirmed to them. This does nobody any good.

Better that we all promote financial advice and increase the size of the pie than argue about who gets the biggest slice.

I would therefore call upon This is Money to print a counter article to the one mentioned above, promoting financial advice in general and pointing its readers to the most appropriate source for their circumstances.

Chris Budd is managing director of Ovation Finance

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Andrew Oxlade, Editor, This is Money 19th October 2012 at 4:12 pm

    It’s a fascinating debate in part because no-one knows exactly how the landscape will change next year.
    What we do know is that the FSA wants advisers to ‘agree charges upfront’. People with smaller amounts of money (i.e. many Mail readers) will not want to pay for advice upfront – or even as agreed commission – when before they have been paying ‘nothing’.
    Once they fully understand the cost of financial advice, they may want to have a crack at it themselves. This is clearly something of concern to you, and many other IFAs and understandable so. And as we highlighted in this article and others before, we’re also worried of the dangers of ‘self-mis-selling’ (it’s in the 11th par) as those who need good advice stop taking it.
    I have always encouraged those who need financial advice to seek it via good advisers and planners, preferably using fees-based firms (I fully back the RDR’s aims to remove the potential for commission-bias).
    You say, “The article went on to extol the virtues of Axa Wealth’s new direct-to-customer service”. I’d say that’s unfair given that the article actually goes on to highlight the high cost of investing via the AXA Wealth service vs the other players on the market.
    Fee-based firms already have clients that accept the value of financial advice and are happy to pay but many other people will not be. We will continue to promote the use of good financial advisers but we will also redouble our efforts to aid those who want to go it alone, pointing out the pitfalls and showing them the lowest cost routes to investing.

  2. I think Chris gives an honest overview of the consequences of RDR next year which I very much agree with. The apartheid between those who will seek advice and those who don’t will widen even more, with the average client just not bothering.

    The main stream press articles have been somewhat misleading, my in-laws for example had read an article on RDR in a well-known national newspaper and asked me how my client were going to react to me giving them a bill of £500 for just speaking to them on the first visit, and there was no way that they would be paying for any financial advice!

    Live last year on Money Box BBC Radio 4 Merryn Somerset Webb Editor-in-chief of Money Week stated “If you have relatively small amounts of money you do not need financial advice” below £50,000:00 she quoted, no mention of the type of clients I meet on a monthly basis, a family with a large mortgage, 3 young children, both self-employed or working for a small employer that offers no sick pay and absolutely no protection, they might not have the £50,000:00 suggested to invest but they most certainly need financial advice to secure their future!!

    Almost every week another high street bank pulls out of giving advice to the masses, all of the home service providers are long gone and as Chris quite rightly pointed out as we all know people are not saving anywhere near enough for their future either by savings or pensions so as far as I can see RDR is creating a scenario which is the complete opposite of what it was set out to do.

    I have always told my clients how much I will be remunerated unlike many other services people use, unfortunately our industry does have a bad name historically created predominately by the banks but there is a wealth of advisers out there who already have great honesty and integrity and who have given excellent advice through the years to their clients so if the pro RDR camp and all those people in the various castle grey skulls who are pushing it think that come the 1st January 2013 there will be a beautiful world of perfect financial advice are quite frankly delusional.

    I work in the North East of England and my clients are not millionaires just genuine working class people and I do not see RDR as positive move for the masses which has already been proven so far.

  3. @ Andrew Oxlade
    Self Mis- selling ? Now that is funny. Who will The DM direct them to sue when this happens?
    Like the regulator, the DM appears to believe that the lowest cost is the best deal.
    If only journalists would stick to their own jobs and stop pretending they know how to do other people’s.

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