The chances of being financially better off overall
An in-depth report was published this week, bringing together some insightful statistics from a combination of data provided by YouGov, financial firms and third party consumer businesses.
The main take away from this report focused on what people are to prepared to pay for financial advice. The upshot is that some 92% of the general public are not prepared to pay more than £100 for it. The report also stated that one third of households with between 100,000 and £150,000 of savings and investments said that they would only pay up to £50 per hour for financial advice. Another third said that they would not be prepared to pay anything at all.
The results of the report can only support what financial advice firms have been saying since the introduction of the Retail Distribution Review (RDR) in 2013 which saw a ban on all product commission across financial advice. The average cost of providing regulated financial advice in the UK is £150 per hour (according to unbiased.co.uk). Ordinary consumers are not prepared to pay an upfront fee so, coupled with the fact that this cost can no longer legally be covered by product commission, how is it going to be possible to cater for the financial advice needs of the vast majority of the UK population?
The legal costs associated with investing in property are widely accepted. Therefore, we must conclude that the reluctance to pay for financial advice must be driven by the fact that pre-RDR, the costs involved in delivering a high percentage of financial advice was not paid for by the consumer, but via commission payments from financial product providers.
The ban on product commission payments was driven by a need to improve cost transparency in the retail investment market. It was also intended to stamp out mis-selling, brought about by advice firms prepared to peddle certain financial products to their clients for their own financial gain even if that advice would not deliver the best outcome for those clients.
Perhaps a more effective way to deliver better outcomes for consumers who do not want to pay upfront fees for financial advice would have been to take a look at regulating these commission payments rather than implementing an outright ban.
In January 2016 the Financial Conduct Authority (FCA) announced that a return to commission on some level was not out of the question, only for it to be ruled out again in March 2016 by the Financial Advice Market Review (FAMR). This indecision is a clear indicator that finding a way to plug the advice gap is high on the agenda for both the Government and the regulator.
Regardless of how financial advice is paid for, surely the best possible way to re-engage consumers is to make sure they are fully aware, that regulated financial advice will greatly increase their chances of being financially better off overall.