It is no surprise that almost half of UK life and pension customers are not prepared to pay for advice, according to Ernst & Young. When looking for a new product, 59 per cent of the 1,000 people surveyed said they would use an online comparison website while only 36 per cent would go and see a financial adviser.
E&Y executive director of performance improvement Adam Walton said: “We 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.”
I could not agree more. Distribution for financial planning and product sales will become more complex, with execution-only, basic money coaching, focused, simplified, restricted and whole of market advice offered from next year.
Many distributors will offer more than one type of financial advice and consumers will have different choices depending on their needs.
How does the regulator expect people to fully understand these choices?
The Money Advice Service needs to pull its finger out and start an RDR consumer education project now. The MAS’s annual budget has grown from £43.7m for 2011/12 to £80.8m for 2012/13. It plans to spend almost half of its £46.3m annual advice budget on marketing and brand awareness.
It is not just the commentators who are having a go at the MAS for its ridiculously high budgets funded by an enforced levy on all financial services firms. Labour has tabled a series of amendments to the financial services bill that would place new requirements on firms, investors and incoming financial regulators.
The Financial Conduct Authority, which will regulate 27,000 firms, should ensure consumers, particularly those on low incomes, have access to “affordable and appropriate” financial services and products.
Labour has said the MAS should provide “targeted, proactive and easily accessible advice to those encountering economic disadvantage, financial exclusion or financial exploitation”. I wait with bated breath to see if these good intentions are met.
The 36 per cent of people who will want the services of a financial adviser will be pleased to hear that, according to a recent FSA survey, out of 3,897 firms that responded, 71 per cent said they are already RDR-qualified, with a further 22 per cent studying. Sixty-nine per cent of firms say they have developed and begun to implement a plan to be RDR-compliant across all the requirements. The FSA says the same proportion of firms have begun to tell their clients, or have told their clients, about changes under the RDR.
This sounds optimistic, especially when FSA head of investments Linda Woodall has said only 36 per cent of big firms, including banks and networks, have informed their clients about the coming changes. The FSA has said big firms may be stalling the move to pure adviser charging as their competitors have not yet made the transition.
This means millions of people have not been told by their preferred financial institutions about the changes. The regulator needs to force those it regulates to tell existing clients about the move to adviser-charging so consumers have the option to sort out their finances on a commission basis before this option is gone.
Kim North is director of guidetoadvice.co.uk