Here we are more than six months after the introduction of the RDR and the dust still hasn’t settled.
One of main intentions of the RDR was to move the financial services industry away from being able to buy distribution and to try to improve customer outcomes. It looks however that the RDR is considerably reducing the number of financial advisers and therefore there will be less people receiving advice which will result in a lower number of positive consumer outcomes.
We are witnessing the death of financial advice on the High Street as the big banks such as HSBC, Barclays, Lloyds and Santander closing their mass market financial advice offerings. Life insurance companies such as Axa and Aviva are also bowing out of providing direct advice due to the increased cost of complying with the RDR.
The good news is that adviser firms appear to be benefitting from the hundreds of financial advisers being made redundant by the banks. True Potential, for example, has seen a huge growth in adviser numbers as a result of displaced high street bank advisers who wish to continue providing advice and don’t want to abandon their clients.
But what about the consumer? Money Marketing understands that consumer research conducted by the FCA is evidencing a lack of awareness among consumers about what they are being charged for when they receive financial advice.
NMG research suggests that for those who have an existing financial adviser the most popular way to pay for advice is to have the adviser charge deducted from their investments.
The research goes on to report that for those who have not got a relationship with a financial adviser, the way that they think they would like to pay for financial advice is to pay the adviser directly.
This I believe is due to people not being aware of the true costs of such an approach. NMG then asked this group of unadvised consumers, “what if the adviser charging is higher than you are willing to pay?” Thirty four per cent said they would complete the transaction themselves without any advice.
I believe that the RDR has had a detrimental affect on consumers. Why? There are less financial advisers to see, adviser charging is too expensive for thousands of people and for those that can afford adviser charging it can be 20 per cent more expensive than previously due to VAT. Ernst & Young director Malcolm Kerr believes the FCA is unsettled that the RDR has not actually worked in the way it hoped it would work.
But what are consumers doing when they want financial advice? The majority of over-55s say they prefer to “do it yourself” when sorting financial matters, according to website All About Money.
If this is correct, it is very worrying as in my opinion those at pre retirement, alongside those who have a young family need financial advice and access to the better products, whether that be annuities or protection, more than at any other life stage.
Now is the time for the banks that have switched off financial advice to be educating the huge part of the population who do not use an adviser about financial planning, products and why different products are needed at different life stages. One can but hope….
Kim North is director at Guide for Advice