View more on these topics

PIMS: Demand for advice will increase post-RDR

Ernst & Young believes advisers who remain in the industry post-RDR will be able to charge higher fees because of the rise in demand for advice.

Speaking at the PIMS conference on board the Aurora today, Ernst & Young director Malcolm Kerr (pictured) estimates that adviser numbers will reduce by a third by 2015, allowing the remaining adviser community to take advantage and charge higher fees.

Kerr said: “We see around a third of advisers pulling out, which means an increase in the demand for advice, and as a result advisers will be able to benefit and increase their fees as the supply of advice decreases.”

Kerr, who was predicting the shape of the advice landscape in 2015, added the regulatory burden would not decrease when the FSA moves to its new structure next year.

“The regulatory burden will not diminish when it moves to become the Financial Conduct Authority. There will continue to be a small number of advisers who do not behave in the right way and will let the rest of the industry down.”

Kerr went on to say that advisers conducting due diligence on platforms should concentrate on how easily the platform has found it to make profit and how much money the platform has had to spend to reach profitability.

“There are platforms who have large amounts of turnover and assets that are yet to reach profitability, advisers should be looking at that. When choosing a platform they should be thinking about what profits look like compared to the amount of investment in the development.”

Recommended

IP with a difference

Every year, I read four or five well reasoned articles lamenting the low take-up of income protection insurance. The authors recount the genuinely excellent benefits of IP and argue advisers should focus their efforts on this form of protection, which the experts accept as the most important of them all. I have made numerous attempts […]

8

Charges waived as PosSol picks Aegon as preferred platform

Aegon-owned Positive Solutions has announced that Aegon Retirement Choices will be the first of three platforms on its panel, with charges waived until 2014. PosSol chief executive Peter Coleman says it will not be mandatory for advisers to use any of the three platforms but he hopes the commercial benefits which have been negotiated will […]

Don’t play chicken with the Bank of Japan

By Josh Ausden, Head of Client Investment Strategy, Neptune Short-term yen strength has hurt the Neptune Japan Opportunities Fund but recent events have only added weight to our conviction that the Bank of Japan will act to ease policy, boosting multinationals’ profits and weakening the yen. In recent weeks the performance of the Japanese stockmarket […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 13 comments at the moment, we would love to hear your opinion too.

  1. Oh yes Martin, and how do you know? You work in the the same ivory tower as the FSA with no idea of the real world!
    At least you are admitting that 33% of advisers will leave the industry!
    And it not just the small companies that let us down-
    Ernst & Young will be forced to pay $2 million in fines for its failures connection to audits conducted from 2005 to 2007

  2. I am sure he is correct and the need for advice will increase post RDR, and yes advisers will be able to
    charge higher fees the problem arises will the general public who need the advice pay the higher charges or for that matter any charges that are realistic

  3. Another day, another forecast from someone who says there will be more people looking for advice from the lesser number of advisers post RDR. I say; what does he base these assumptions on because the flip side of the coin is there is supposed to be less people looking for advice because they won’t want to ( or can’t afford to) pay for it. Make your mind up boys, which is it to be?
    As for the 30% reduction in advisers methinks he’s been reading one of Hectors old speeches.

  4. The title of the article is a bit misleading. A reduction in supply does not automatically mean a rise in demand. Surely a rise in demand would be more people wanting advice independent of the supply.

  5. Soren Lorenson 17th May 2012 at 4:08 pm

    The market would indicate that the demand for pure fee-paid advice is relatively small and is already being met by those advisers who have always operated their businesses this way.

    If there was a great demand for fee-paid advice more firms would already be working on this basis.

    However the average client simply needs a guided sale and they won’t pay fees for that.

  6. Advisers will need to charge more. Not to make a profit, they will need to pay another 33% in regulatory fees & levies.
    You do the math Malc.

  7. Denial of choice to the consumer is hardly likely to generate demand for services. It’s amazing what silly things intelligent people can dream up.

  8. Martin Bamford 17th May 2012 at 4:35 pm

    There are some really great messages coming from Ernst & Young today. Those in the IFA sector with a positive mindset will no doubt enjoy these. Supply will reduce (although maybe not by as much as a third), and demand is growing by virtue of an ageing population and the baby-boomer generation reaching retirement. From the perspective of business opportunities, what is there for IFAs to fear?

  9. Ernst & Young are the mouthpiece of the FSA

  10. James Marchant 17th May 2012 at 4:58 pm

    That’s a bit harsh Nick!

    Like them or not, Martin and his Dad have an excellent business and rather than sniping at them many advisers could do an awful lot worse by learning from them!

    As for the clients wont pay fees argument that others have raised. Clients WILL pay fees or adviser charging if you prefer if something of value is placed in front of them. I don’t operate in the high net worth space but can give many examples of normal everyday people who have paid us for financial advice either by cheque or via a charge from a product. They will pay for advice if you give them something of value, they won’t if your proposition is ‘I pick the best product from the whole market’!

  11. Please, let’s kill this nonsense before it gets picked up and becomes ‘the truth’.

    There is no objective proof and not a single indication that consumer demand for advice will increase.

    To my knowledge even the FSA hasn’t tried this particular gambit.

    Those consumers savvy enough to realise that advice is worthwhile are already taking it. If we go back to 2007 and the first RDR consultation its aims (at that point) were to encourage those non-users into the advice market.

    Subsequent developments have killed that prospect with the ‘simplified advice’ proposals being the last nail hammered in.

    The situation is perfectly clear – 30% less advisers = 30% less advice (all things being equal).

    Are we to believe that those consumers who do not currently take advice will suddenly sit up and decide that now they have to pay a fee they will go visit their local adviser? Do me a favour.

  12. Demand for advice may increase but the level of fees that may have to be charged Post RDR with no cross subsidy will probably be out of the ordinary working families reach.

    I recently completed a drawdown case, which on the face of it was quite simple, estimated time to completion from initial meeting to payments to the client for his pension was 10 hrs total (max)

    So far, because of the messing about of a certain Life Office, it has taken over 15hrs, my initial charge was set at 1.5% of net funds paid as a commission (circa £1005 before network costs of 37% = net earnings £633) Had I charged our networks hourly fee of £150 ph I could have expected £2250 as a gross fee.
    Another option was for a fee charge IAW network terms of 4.5% of vested funds = £3015.

    Try presenting that scenario to a client, based on the fact that the costs of PI and FSCS levies, plus FSA bizarre Arch Cru compensation plan are ever increasing.

    That level of fees was unacceptable to the client and I would not have retained his business.

    So for 15 hrs work I receive a payment of £633 = £42 per hour, out of which Tax, NI and office expenses have to be deducted working out at about 50% of gross receipts, my net earnings are £21 per hour.

    In future my fees will be set at the maximum I could expect from current commission rates and no less, so I will effectively ditch about 90% of my clients after 22yrs as an IFA, my business will eventually be worth nowt.

    If anyone is under the illusion RDR is going to benefit the consumer, they are deluded, only the very wealthy will eventually be able to afford us.

  13. commission rates have not changed in the 24 years I have been in the business and yet this idiot thinks that we will be able to charge more, post RDR? What planet is he on. The problem is not getting clients pay the fee, the problem is getting them to pay the fee that we need to make a profit.

Leave a comment