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Half of customers don’t want to pay for advice

Almost half of UK life and pension customers are not prepared to pay for advice, according to Ernst & Young.

The findings are based on research with 1,000 life and pension customers in the UK as part of a global survey of 24,000 customers.

Asked how they would want to pay for advice from an adviser or intermediary, 45 per cent say they are not prepared to pay for advice. Nineteen per cent say they want to pay for advice through charges deducted from the policy, 12 per cent through either an up-front or ongoing fee, 11 per cent choose a combination of charges from the policy and fees while the remainder say they do not know.

When asked how their adviser is currently paid, 10 per cent say their adviser gives advice for free while 21 per cent do not know.

A quarter say their adviser is paid commission that is ded-ucted from their policy, 6 per cent say an up-front or ongoing fee and 4 per cent say it is a combination of fees and commission.

Thirty-three per cent do not use an adviser.

When researching a new product, 59 per cent say they would use an online comparison website while 36 per cent would seek out a financial adviser.

E&Y executive director of performance improvement Adam Walton says: “We definitely do not think this is the end of paid-for advice but there is massive education to be done to help customers navigate the new landscape.”

Jacksons Wealth Management managing director Pete Matthew says: “The majority of people will not pay for advice, so we have to communicate the value that advice adds.”

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There are 25 comments at the moment, we would love to hear your opinion too.

  1. In which case, I’ll stick with the other half that do.

  2. The 33% that do not use an adviser probably make up the majority of the 45% that wouldn’t pay for advice.

    The 10% & 21% that believe advisers give advice for free or do not know how they are paid demonstrates the need for education of the public. I would like to think that this combined 31% are also those who do not use an adviser, although it wouldn’t shock me if this wasn’t the case.

    The fact that 42% of those surveyed said they are happy to pay for advice through product charges and/or upfront fees is actually quite promising among all the doom-mongers who say that no-one is willing to pay for advice at all and that the new renumeration models are unworkable. This clearly proves otherwise.

  3. And most of those that will pay will expect to shell out about the same for a financial review as they do to get the windows cleaned.

    Be good at what you do, and do it for HNW clients who need your advice and will pay commercial rates for it. If the rest don’t value financial advice they can use the MAS which is of course free, or just do nothing. Simples.

  4. Presumably those who don’t want to pay for advice will use the services of the Banks and then complain they have been misold something.

  5. Derek Bradley ceo PanaceaIFA.com 13th April 2012 at 9:09 am

    The Waterbed effect is a phenomenon that will increasingly cause concern to those who regulate the industry and those it regulates in regard to pricing and consumer detriment .

    It is in fact the natural but not necessarily intended potential to squeeze one part of a complicated and complex regulated business model and the attendant regulatory processes to cause a serious bulge elsewhere in the process.

    The metaphor of the water-filled mattress seems to be a common sense albeit simplistic description but it is supported by a little known mathematical formula called Bode’s Sensitivity Integral.

    The Waterbed effect is already well illustrated in the mobile phone industry where regulation fixes the prices of basic products and services only for consumers to see significant increases in the price of peripherals and additional services as a direct consequence.

    So, the Waterbed effect theory in RDR dictates that in achieving:

    the elimination of bias in the market
    ensuring the adviser is the true agent of the consumer
    clarity over the costs of advice
    and the various other factors, we will no doubt see the bulge appear somewhere else.

    As Nic Ciccutti said recently in MM “One might have hoped that by now the FSA would have realised its’ RDR process will take affordable advice beyond the reach of millions of consumers and by further entrenching the need for subjective analysis, it is simply piling ever increasing costs on the consumer”.

    Yes, costs in every conceivable way and not only for consumers. Cost is something that the FSA incurs for firms, often with little thought of logic or affordability and with little benefit analysis being done on the consumer impact it creates.

    He goes on to say, “Clearly, the requirements of this latest FSA activity will place considerable burden on software suppliers O&M Systems, SelectaPension, Distribution Technology and others which supply software solutions to help advisers in this area. The consultation will almost certainly delay the launch of other new systems being developed in this area”. Further illustrations of the Water Bed Effect.

    So how else will the Water Bed effect manifest itself?

    The elimination of bias in the market could see the banks being presented with a huge regulatory sponsored opportunity to no doubt miss-sell in ways nobody could dream possible.
    In ensuring the adviser is the true agent of the consumer, the result will be that mass market consumer will not want to pay for advice that has previously been seen as free- especially as the FSA still has no education plan in place to at least try and justify it.

    Clarity over the costs of advice, sadly the clarity will be that for the mass market, cost equals no advice sought if they have to pay for it. Also consider this example of theWaterbed effect. When a consumer is able to obtain lower prices from an adviser, is it possible that other consumers will have to pay more for the same input from another adviser firm as a result?

    Is this bad for consumers? The asymmetric exercise of consumer power can lead to consumer detriment through raising other consumers’ advice charges- the ‘Waterbed effect’.

    While a large and powerful firm improves its own terms of advice supply by exercising its market power in getting cost reductions, the terms of its lesser resourced competitors can deteriorate sufficiently so as ultimately to increase the average price of advice. Such consumer detriment from the Waterbed effect is more likely if the adversely affected firms are already sufficiently squeezed, due to relatively higher regulatory and other operating costs and a lower market share.

    So while we lay in our Waterbed, what should we wear to prevent a bulge getting the better of us?

    Chanel No. 5, of course was Marylin Monroe’s choice, what is yours?

  6. Findings are not unexpected unless you work in the FSA. RDR will bring big challenges for IFA’s and a large percentage will not survive leaving the remainder to charge be selective on profitable clients leaving out working class Joe. How can the FSA not understand removing client choice is not good for consumers and will not bring a good consumer outcome.

  7. John !!! Because they all come from a Banking Bsckground

  8. The problem with surveys is that people who are busy trying to make a living, do not have the time or inclination to participate in them (as we know from our own workplace experiences), and so a proper consensus view is not always forthcoming.

    However, this one is probably not far wide of the mark!!

  9. The FSA with one swoop has wiped out an industry, leaving a public vulnerable and generations to pick up the cost of poor financial decisions. Another perfect example of their regulation of the industry in action. God help us all.

  10. The IFA is dead long live the IFA.

    I’ve said all along thet the RDR is for the wealthy and not the common man.

    If a company like E & Y can see that the RDR is greatly flawed in “how you pay for advice” then surely something must be done at this late stage to protect the weak.

    With the implementation of the RDR we know now who will stay in the industry and who will go, the big problem is those that stay who have traditionally serviced the common man, how will we be paid? If 45% are not prepared to pay for advice then does this mean that we will suffer a 45% reduction in earnings? Yes.

    Diploma qualified IFA’s stacking shelves in Tescos will be a reality!!

  11. This makes a mockery of the FSA’s statement that they have done all they could to keep advice charging for the majority at a reasonable level. I do hope that E and Y send their report to the select committee and the idiots at Canary Wharf who sit behind their desks all day not having to worry about income and pensions etc

  12. Much ado about nothing.
    The client may not grasp the mechanics of how someone is paid but those who said they get it free, could well be on the dole because lets face it they do get a lot free.
    I feel its about how we deliver the service and demonstrate the added value.
    go compare your IFA.
    Those who know the cost everything and the value of nothing.

    I was taught buy it cheap buy it twice.

  13. All this really tells us is that as an industry we have collectively failed to educate the population about financial planning and associated financial advice which will come a surprise to nobody. Yes that means all the associations, trade bodies, regulators, advisers, product providers and Government…. but then its an impossible task.

    Anyone that thinks that a job can be done for free is operating in a different universe to most of us. Everything has a price – even charity.

    The question of how advisers get paid has been addressed in part by RDR, to my mind – an agreed amount with the client and not determined by the product or provider. However whether this has to be a fee or commission is frankly a non-issue provided that it gets away from old commission models that are complete nonsense – which is presumably why the FSA have said, make life “easy” and agree a proper fee.

    What the regulator rightly points out is whether the fee is properly earned – ie, what does the adviser do for the money?

    The commercial reality of how much the fee is is then tapered to the right market, as it is in every other walk of life.

    If you cannot find the right clients out of 60m people in the UK something is wrong and if you cannot make your sums add up you are in the wrong business.

  14. What can I say? Obviously the sector which generated the least number of complaints is more trusted by the public than their own banks or building societies has to go, it is impeding the progression towards putting into place the Banks and Building Societies and Direct providers as the main distribution channels for financial products.

    Don’t panic, the roof is caving in but we still have time to get out!

    Will the last transaction based IFA please turn out the lights?

    What actually so wrong with the commission system that the regulator could not find a way of changing it so that it was still available?

    God know, I don’t

  15. I think it is going to be interesting to see how the regulator is going to enforce RDR regulations in particular what is deemed to be advice.

    I read an interesting article recently about a court case where a customer entered into arrangement with the bank under a non-advice process only for the customer to successfully sue the bank for miss-selling. The reason given by the judge was that the interaction between the customer and the bank staff member where the bank staff members was taking information and offering an opinion constituted advice process.

    If this judgement is extended to all banks and website comparison sites that ask information it could have a drastic effect on the market place. After all if any client provides an organisation with information how can their organisation state that the transaction is being conducted on a non-advice or execution only basis.

    I’m only asking for the FSA to fully in force RDR regulations and crack down on anybody providing advice that are not authorised and regulated to do so, I include websites, banks, accountants and solicitors who are not registered with the FSA to give advice.

    Level playing field!!

  16. Astonishing how a report of a survey that tells us nothing about the sample, and nothing about the research method, can generate so much heat. The accountants do these things for the publicity, and for the – completely spurious – industry credibility.

    Consumer research in this field is a nightmare, not least because buying occasions are rare. Fred, presented with a questionnaire, will agree that most insurance salesmen are sharks. Fred will then assert that his own insurance salesman is a trusted adviser and family friend. But overall, he will be led to offer judgements within the constructs that have underpinned the qestionnaire. And the construct that regulators and industry insiders know as ‘financial advice’ can’t be researched because Fred doesn’t share it. It doesn’t mean anything specific to him, if it means anything at all.

    Financial advisers who are perceived to add value in excess of what they cost will survive and prosper. The rest will disappear.

    The regulator is a preposterous waste of time and money, and anything it has achieved could have been achieved at a tiny fraction of the cost, but no-one will improve their business by worrying more about the regulator than they do about their customers.

  17. This is great news as 50% of the people out there will pay for financial advcice

    I only need 30 a year so i am sure there will be enough to go around

  18. A quick straw poll of random people in the street suggests that most people would not pay for something they could do themselves. However most would be willing to pay for a service that they could not do themselves. Paying money into a pension or investment, arguably, falls into the first category. So it is hardly surprising to find a high proportion of people unwilling to pay for the advice. I imagine of those surveyed by E&Y a similarly high proportion would question what their adviser actually did for them to earn their commission.

    The truth is, advice is not necessarily for the masses. There I said it. Most people would get by fine with some well placed guidance. A lot of financial decisions are probably made by friends sat in the pub discussing who they have their pension, investment or mortgage with.

    Post RDR, the people who want and will be willing to pay for advice will be those who do not have the time to do it themselves. If you could earn £100/hr doing your own job then why not pay an adviser £100 to do some research for you.

    Advice will be paid for by the wealthy and the general masses will make do with MAS or their local bank.

  19. The bombshell in this (and I do mean a great big exploding thing that leaves a crater) is that the model put forward by the FSA which will cause many IFAs to put their clients onto a single platform is exactly the model used by Knight Williams over 20 years ago and which was so heavily criticised by the press of the day that the company was forced to close.

    Yes, I know that platforms were not generally available then but KW had it in-house and it worked. They were the country’s largest unit trust brokers and they were shifting a lot of stuff until the press called for them to be closed down on the grounds that they were not independent.

    When word of how naff the RDR is gets onto the streets and in the heads of real investors (not the saver types who found their way into the survey) there will be an outcry.

    The FSA has developed an environment in which the KW model is to the fore. And if anyone doubts the regulatory view of the KW model, any director of KW was banned by the FSA from holding an any position of influence in a financial company.

    You really couldn’t write this stuff. The FSA just makes it up as it goes along and manages to create one disaster after another.

  20. E&y blinding flash of the obvious 14th April 2012 at 10:20 am

    Yet again a professional services firm pandering to potential clients, a very oversimplified statement from a seemingly intelligent organisation . Mr. Kerr et al one expects some more astute thinking….also restating the problem is not what one expects from you lot….perhaps some other big 4 has a solution

  21. When I built my business my then young clients paid monthly into pensions and ISAs. It made me a living and they were educated along the way. Now they are middle aged, value the advice they have grown to trust and rely upon over the years and have investments and pension pots generating enough commisison/fees to provide me with a living in the future.

    All of which relied on forming that relationship in the first place. A relationship which would not have happened if those youngsters were asked to pay a fee to make them buy something they really didn’t want to buy becasue they were not worldy enough to understand the value of the product they were buying and importantly, the value of the education they were going to acquire.

    Under the ‘new improved’ regime there will be no real advice to today’s youngsters, they will not understand the value of advice,they will not (at the basic level) have someone twisting their arm to save something so they have something later and a generation will end up in a poorer place as a result.

    Sad, very sad.

  22. Some of the comments from supposedly advisers here are very dissappointing and show they lack of understanding and empthy with the ordinary man in the street. Go fill your boots with high networth clients because as I have said before Financial Advice now is only applicable to the wealthy so let the others rot eh? The rich getr richer and the poor get poorer. I would love to see some of you guy’s spread of business..stating you are IFA’s & whole of market…How many providers and prioducts do you actually use? The point being is the customer no matter how wealthy going to get a professional service for the amount they pay? I would guess not based on the evidence I have seen when auditing such businesses where if they have used 3/4 providers the client is doing well. Becareful because ultimately you have to demostrate that the service you are providing is value for money and in the best interests of your clients and not your pockets. Look at your own client portfolio’s and recommendations and can you honestly say that you have been totally independent? If not you are certainly going to have to be moving forward. How snobby advisers have become since achieving their diploma’s etc. With many of the starting where I started in home service and those clients helping build up your businesses, you know those clients some of you now want to turn you backs on. Remember what goes around comes around and I honestly believe that some of you are in for a bigh shock!

  23. martyn sinclair 14th April 2012 at 4:13 pm

    What on earth is all the fuss about. Of course the clients will pay.

    The only clients who will have a issue are those whom advisors have previously “hidden” costs from.

    I am a traditional IFA, deal in mid range clients, £100,000 – £500,000 and every client whom I have presented a fee structure to loves it and prefers this way to commission.

    Why on earth should would a client pay commission/fee from tax advantage portfolios, such as ISA’s and Pension’s.

    The correct advice is fee.

    Explain to your clients and you may just be suprised!!

  24. I agree fully with the Realist, a large proportion of the population do not want financial advice and probably wouldn’t take it if it was free.

    Most peoples affairs are perfectly simple and don’t warrant the use of an IFA.

    Those people who do use IFA services I suspect will continue to do so.

    As for attracting new clients, set your fees at a reasonable level. People earning £8, £15, £20 and £30 an hour will flinch at paying someone £50 – £100 per hour unless very good value for money can be displayed.

    The very last sentence of the above article says it all, and all too often this cannot be shown to any degree at all.

  25. Good. That will stop me wasting much of my time on them.

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