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KPMG: Regulation is damaging retirement advice

Regulation is causing some advisers and wealth managers to de-risk retiring clients’ portfolios too soon whilst also steering certain investors away from valuable financial advice altogether, according to research by KPMG.

In a report released today, UK Wealth Management at the tipping point?, the firm says some advisers are playing “too safe”  with their clients by focusing heavily on lower risk products. It also warns that a move towards self-direct investing, caused by the regulatory costs of advice, could be damaging to consumers.

The research sought the views of 41 chief executives within the wealth management industry and 300 ultra high-net worth clients along with data from research company Compeer.

The report says: “The focus on de-risking into retirement is reducing choice for many individuals and in some cases reducing the risk profile of their portfolios too soon.”

KPMG European head of investment management Tom Brown says: “Our research found that many financial advisers fear being punished by the regulator for misselling riskier products. As a result they may be over-cautious and inadvertently provide the wrong advice to some investors. 

“At a time when the economy and Government need people to be building retirement pots, many everyday investors are being steered towards lower risk investment or are shunning financial advice altogether. Whilst lower risk strategies will be appropriate for many clients, there will be clients who are at a stage of life when they could be taking more risk with some of their investments.”

The report warns rising costs are discouraging investors from taking financial advice and clients are more likely to look at self-direct opportunities which are not necessarily in their best interests.

Brown says: “With £50 being the usual cap most people will pay, it is concerning that many everyday investors do not use or see the value of financial advice, and on the whole are unwilling to pay for it.

“As the onus is increasingly left to the individual to make provisions for their long-term savings, it is alarming people are likely to spend more on a plumber than on financial advice, which could set them up for retirement.”

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Comments

There are 15 comments at the moment, we would love to hear your opinion too.

  1. Would this be the same KPMG that likes to employ X FSA directors.

    RDR !! in the words of the great Ian Durey “what a waste”

  2. I wonder why IFAs are starting to play it safe. Could it be because they work in the only industry where an incompetent regulator can retrospectively change the rules to always make their inadequacies somebody else’s fault?

  3. Is this the same KPMG which reviewed and branded virtually every pension switching recommendation by Positive Solutions members as missold if the analysis reulted in a recommendation which involved any additional client expense?

    They are an integral part of the problem!

  4. The de risking would not surprise me given recent compensation rulings. It seems the nature of regulation is ‘where there is blame there is a claim’ mentality. Justified or not – the rules are twisted to fix – Arch Cru anyone?

    As we are seeing now with the current & coming, regulations the clients ultimately pays or the numbers giving advice decreases. Either way the public does lose out sadly.

  5. You do not need such research to establish the blindingly obvious. It is simple common sense.

    I could make a large list, but let’s keep it simple shall we:

    Question: When and why do you go to a solicitor?

    Answer: Because you have to

    Question: When and why do you go to an accountant?

    Answer: Because you have to

    Question: When do you go to a Financial Adviser?

    Answer: When you choose to – i.e. you don’t NEED to. That’s the perception that will prevail with a very large swathe of the population for a long time I’m afraid.

    The simple truth is that, generally speaking, people pay for what they WANT, not what they NEED. They only pay for what they need WHEN THEY HAVE NO OTHER CHOICE

    This is why – unless there’s some radical re-thinking – in 20 years time, the government of the day will be looking back and wondering why there is a massively increased shortfall in retirement provision. “Why didn’t NEST work chaps?” “Good Lord Sir Algernon, why haven’t people made provision?” I’ll tell you why: because what the government hasn’t quite got through its collectively thick skull, is that the cost of living for the large majority of people is so high relative to their income, that retirement saving is simply a pipe dream.

    People need to be convinced, persuaded, helped, ADVISED to do these things. They can’t afford fees and even if they could, they would choose not to pay for advice in most cases; they’d rather buy a bigger house or a newer car or a new plasma TV.

    Another prime example is Stakeholder pensions. The government thought everybody and his dog would wake up one Sunday morning, leap out of bed, rubbing their hands with enlightened glee, dive onto the web and excitedly work their way through a decision tree to get themselves a Stakeholder pension. They didn’t. In droves. Why?

    BECAUSE THE IMPORTANCE OF PENSIONS NEEDS TO BE SOLD (yes, SOLD) FACE TO FACE. IF NO ONE CAN AFFORD TO CARRY OUT THAT WORK, NO ONE WILL HAVE ONE. SIMPLES. Tche!

    In the words of the song, “I predict a riot”.

  6. Don’t worry folks, NEST and the Money Advice Service will save the day !

  7. EEEEEEEEEERRRRRRRRMMMMMMMMMM
    3 simple letters RDR! we have warned the FSA TSC and the rest of the politicians and trade associations of these implications since CP121 the (illegle) menu and polorisation pre RDR. The demolition of the IFA community by over regulation is the reason for it!

  8. Amazing KPMG now say RDR and regulation is killing our industry. A little late I think.

  9. I agree with Polfers 100%. Couldnt have put it better myself.

  10. OMG !!!!!

    If this wasnt so bloody sad it would be bloody funny !!

    Have they been paid for this research ??

    Who by ??

    This is the stuff of genius !!!

    When all this absolute regulatory interference/ RDR/nonsense is seen for what it truly is – someone MUST pay – fat chance !!!!

    I cant be bothered to comment further – I am speechless !!!

  11. KPMG – Keep Publishing My Guff. Why has this come as a surprise to them all of a sudden? Do these people actually think they are important? A lot of us have been saying this for years. RDR is going to kill off a lot of advice for the public but they will still be able to get some non advised advice from MAS (or whatever its replacement is called when it is scrapped in favour of some other ridiculous idea of FCA in the future) so thats ok then.

  12. The answers are relatively simple but nobody is listening because nobody, other than us, carries any responsibility.

    As Sir Robin Day pointed out, politicians (and regulators) are here today gone tomorrow ephemerals. Tenants of the building, looking out the windows and grinning but not responsible for its structure.

    Politicians are not good at understanding the issues and those few who do grasp them – Tyrie and Garnier – are powerless to influence the majority who consistently vote without knowledge.

    The issue at the core of all this relentless tosh is whether consumers willingly approach advisers. In regulatory utopia advisers offices are crowded with clients and the world keeps spinning.

    In the real world financial matters are dull, not worthy of too much thought and easily divertable to another day.

    It is now accepted by all but a hardcore bunch of optimists or high net worth advisers that the RDR will have only a negative impact – as soes most regulation however well-meaning.

    One day someone will look back and cry in despair at the wreckage and, like Oliver Hardy, will say, “Another fine mess you’ve got me in.”

  13. Larry in London 6th June 2012 at 11:04 pm

    T.OSSERs

  14. Well this has been obvious to everyone in the industry for a long time but the regulator and the politicians who listen to them don’t get it!None of these people have a clue about advising real people in real situtaions with sword of damacles hovering close by if not exactly overhead.The public have no idea what is really going on and why IFA’s are changing what and how they go about their business.Is this an unintended consequence?Does it matter?Will this report make one jot of difference?Of course it won’t ,they have set the path and will follow it to the (bitter) end now.

  15. Lots of good comments above, BUT which wll have a more detrimental effect?
    1. derisking a year or two too soon before purchasding a secured pension (Annuity)
    OR
    2. Being derisked inappropriately at an early age?

    This is from April last year

    Nest chief investment officer Mark Fawcett has defended the scheme’s investment strategy against criticism it is too cautious,

    “Younger people are natural risk takers.

    Many commentators who’ve criticised Nest’s investment approach have started from this instinctive position.

    Sharing our investment approach was always going to lead to a debate about risk – just how much is too much and how little is not enough?

    For some commentators, we’ve got the balance just right, but another camp believes we’ve got it wrong, especially for those risk-loving younger people who should be going at full equity throttle, or so some feel.

    But I wonder just how much some of these market watchers actually know about Nest’s likely membership – and particularly its younger members. We’ve designed our approach not based on instinct and assumption, but on a lot of research and extensive consultation over several years.

    The facts are that our members are likely to be less able to absorb financial loss than those currently saving and investing via a pension scheme, less seeking of investment risk and unlikely to recognise inflation risk.

    And when it comes to our younger members – those under 30 – it might come as a surprise to learn that they’re especially sensitive to volatility and loss and are most likely to act adversely in the face of such volatility.

    Put another way, there’s a fair chance that if a younger member who’s brand new to investing sees repeated negative returns or big losses in their early years, they’ll get spooked and stop saving altogether.

    I’d expect that even the most critical commentator would agree that younger people stopping saving for their retirement entirely at such an early age is significantly less favourable than the Nest ambition to keep pace with inflation for the first few years and support a growing confidence in saving………..”

    Perhaps a discussion between KPMG and the head of NEST would be of interest…. then again maybe not as they all have their own agendas.

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