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Steve Bee: Are advisers earning too much?

I read two reports recently about the need for financial advice. The first, from the FCA and published last year, suggested up to 18.2 million people in the UK who had probably needed financial advice over the previous 12 months had not taken it. That number brought home the scale of what is surely a national problem.

If 18 million people who need advice on complex financial issues in a year are not seeking and taking advice, then there must be one of two things going on: either people don’t know they could benefit from professional advice, or they have no access to it.

The latter would appear to be the case. According to a more recent report from OpenMoney, a digital advice firm, 19.8 million people in the UK would like to have access to financial advice but don’t know how to get it. Those numbers, 18.2 million and 19.8 million, give credibility to the scale of the problem. It’s huge!

The cost of financial advice may also be a factor and could itself restrict access for people even if they are fully informed about how and where to get it. According to the Money Advice website, the going rate for advice fees ranges from £75 to £300 per hour. At the top end, that exceeds even the cost of taking legal advice, which public sources say can be expected to cost £200 per hour.

Steve Bee: Changing advice for changing realities

The relatively high costs of taking financial advice and legal advice being broadly equivalent must surely act against financial advice becoming widely available to tens of millions of people a year. I do not think the legal profession could possibly provide legal advice to close to 20 million people a year and command such fees, but I presume it does not have to do so.

In our modern times, where a large proportion of the population has access to powerful handheld computers and the internet, there is obviously a place for AI and algorithms to help spread both financial and legal advice. Both professions have already embarked on such solutions.

But a computer programme is no real substitute for one-on-one advice, just as is the case with the medical profession. Speaking to a doctor may well come as the result of online screening, but very few people would see an online consultation with an algorithm as being satisfactory.

The questions of availability of financial advice and its cost are twin problems the industry needs to address urgently if it wishes to make advice available to all. The most obvious way to deal with accessibility is to engage employers in the process. All workplaces now have pension schemes – one of the most complex of financial arrangements. Making advice available on the back of that should be a natural development and could be made widespread through online platforms.

One-on-one financial advice must be available at the end of any online solution for it to be widely accepted. Yet the cost of such advice needs to fall substantially, perhaps even to nothing, for it to become commonplace to access advice whenever required throughout life.

This would require a complete re-think of the way financial advice professionals themselves are remunerated. Maybe that is the biggest challenge of all?

Steve Bee is director at Jargonfree Benefits

Follow him on Twitter @PensionsGuru

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Comments

There are 16 comments at the moment, we would love to hear your opinion too.

  1. Steve,

    Just as many people need financial advice as need medical advice, people seem to have no problem with GP’s earning £150kpa.

    Financial advice is just as complicated as medicine and if an adviser is to provide proper planning as well as advice, then the adviser needs just as much knowledge about finance as a GP needs about medicine.

    Plus £200ph might get you a solicitor, but it certainly won;t get you any form of specialist barrister. there fee’s can run into 3 or 4 times the amount easily.

    As such you might want to find a better comparison point. You seem to be suggesting that Financial advisers shouldn’t charge for their advice.

    So one might ask how you expect them to get paid?

    • Are you for real? An adviser needs just as much specialist knowledge about finance as a GP does about medicine. Have a reflect on that comment buddy.

      • I take it you didn’t read my comment properly? Because I said that exact thing…

        • I take it you didn’t understand his response? A Financial Adviser does not require as much specialist knowledge as a doctor. Why do you think a medical degree takes five years and further training of up to three years when they want to specialise in something such as anaesthetics. I do agree the article is nonsense though but of course you only have to look at who wrote it to know that.

  2. Scott Gallacher 22nd July 2019 at 3:41 pm

    I suspect Steve didn’t write the headline “Are advisers earning too much?” but to answer that point, surely basic supply and demand would drive down the costs of advice if advisers are indeed ‘earning too much’.

    The above would happen due to more people becoming advisers (attracted by those apparently earning too much). Those new advisers would compete for clients with existing advisers, and this extra competition would lead to the cost of advice being lowered.

    However, I would take issue that the idea that advisers ‘earn too much’. A comparison with the legal profession is helpful but as readers will be aware, advisers carry much higher liabilities than solicitors due to FOS and seemingly this liability never ends given FOS’s reluctance to grant advisers the same longstop that all other professionals and people in the UK have.

    As for serving the 20m or so needing advice, again a comparison with the legal profession might be helpful. According to the FCA there are just 9,000 financial advisers in the UK (though I have read that number is 20-30,000 from other sources). But according to the SRA there are 146,000 practising solicitors in England and Wales.

    This mismatch obviously is part of the reason that some adviser’s charges are higher than some solicitor’s charges. But, as I stated at the start, I suspect that this is will be driven down over time due to increased competition. Though, to help this, it would be helpful if the FCA, FOS, etc worked together to make being a financial adviser more viable and without an everlasting potential liability following you to your grave.

  3. Philip Renwick 22nd July 2019 at 4:26 pm

    The problem is RDR. The FSA, as it was then used a sledgehammer to crack a nut. All they had to do to stop the abuse of commission was to put a ceiling on earnings , not stop the commission. If the providers paid our fees like before, then all would be able to afford our advice not just the wealthy

  4. Maybe we should ask Steve how big his DB pots are from his tenures with Pru and Scottish Life.

  5. I don’t know where Steve Bee got his figure for Legal Advice at £200 per hour; that’s very much at the bottom end. Not Legal, but last time I checked, my counterpart in Deloittes, the Accountancy firm, was charging £750 per hour.

    I was back in the exam room just a couple of weeks ago to demonstrate that my knowledge is still up-to-date; my first professional qualification was in 1972! How many Lawyers and Accountants are still taking exams nearly 50-years later?

    I don’t agree with Duncan Gafney’s comparison with the medical profession, but comparison with the Legal and Accountancy professions is fully justified. With our breadth of knowledge and ability to apply that knowledge in a practical way means, if anything, we are under-paid not over-paid.

    Every one of 18 million people would take financial advice if it was free, of course, but it isn’t. Their regulator, as much as any other influence, has driven up costs exponentially, not Adviser’s salaries.

  6. What I charge is nothing in comparison to what my clients save from taxation or earn from the growth in their investments and so on. The question is do I provide value? Believe me, if I didn’t. I wouldn’t be doing my job.

  7. Steve, you seem to milking the wrong gender of bovine ?

    The question that needs to be asked is; why are advisers earning so much.

    This can also be asked of the doctors, solicitors ?

    You should know only to well, red tape and liabilities are the most expensive thing in the stationary cupboard !

    And I know you are not ignorant to the fact, we don’t keep all of the fees for ourselves, “one has to pay the bills and levies”…

  8. The problem is the cost to the advisers. PI keeps rocketing, as do the FCA fees and levies. By the time adviser firms pay significant costs to simply operate, there is very little left over. Perhaps the FCA increase of their own fees of 18% this year, at the same time the PI market has reduced and those who remain are charging exceptionally high fees isn’t going to help this further.

  9. The cost of advice if consumers can gain access in the future is set to rise and sharply.

    The cost of PI Insurance, FCA, FOS, and FSCS levies. Factor in the lawyers and claims companies and you have a perfect storm. No adviser or PI Insurer can possibly calculate the future liabilities and with no legal long stop, the liability is unreasonable.

    Billions are being lost to unregulated investments, why has this loop whole not be closed by the regulator?

    Liberty announced it was pulling cover for all DB Transfers for new clients yesterday. They were the last underwriting this area of business to my knowledge. If any other insurer is covering they have restrictions of a few transfer a year.

    The legal system has one governing body, works to very strict rules and most importantly the law.

    Financial advisers do not have rules as such, they have guidance from the FCA,which changes as often as the wind to suit the FCA, so offers no certainty. The FOS does not apply the law but what it feels, which means you have no certainty and previous rulings have left the industry dumbfounded. Then add the FSCS increase limit to £350,000.

    The system is broken, all can see his, but no one in authority wishes to address it. Only when the adviser levels fall to such a low level that there is a public out cry will any thing happen. Then, those that have created the problem will be paid millions to research what they did wrong and do nothing for years.

    Fifty percent of financial advisers are over the age of fifty, many in their mid to late fifties. When these retire there will be a vacuum, as very few are choosing to become financial advisers.

    I certainly have advised my son to avoid the industry, until such time as there is come certainty and common sense applied by those that regulate.

  10. @Martin Evans, I believe one remains. But with a monopoly on the market, they can pick their own price and conditions. And the FCA are to blame for this along with the scammers. Advisers doing the right thing are left footing the bill and now wondering why they’re bothering and selling up. Perhaps the FCA just want the likes of SJP filling this market space, with their upfront 5% charges/penalties and churning them onto their own platform

  11. Hand held computers?

    You mean mobile apps on phones?

  12. So, the FCA have created an environment where customers need to seek advice on certain aspects of their finances, but then deem these transactions to be so high risk that it forces PI cover to increase. This in turn has caused some insurers to come out of the market leaving only a few who then push up their prices as there is no competition. This results in greater expenditure for IFA’s who then have to charge more to make up the losses and are now being accused of charging too much? The mind boggles!

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