Mind the Gap
There is a notable gap in Britain between what consumers believe is involved when conducting a thorough financial review from beginning to end, and the reality of what it costs to deliver such a service.
New research reveals the average Brit estimates a complete nuts and bolts review of their whole financial situation should take no more than four hours.
However for an industry facing an ever growing mountain of compliance and complexity – the operational requirements facing an advice firm may swallow up this time allocation alone.
For some, these 240 minutes would have to cover the discussion, planning and execution for addressing a broad range of matters, for example; investment and saving, personal retirement planning, personal protection, taxation, saving for children, managed funds and ISAs etc.
For anyone who’s tried to get life insurance before, the aforementioned allotted time budget could swiftly elapse in dealing with this single matter.
The following chart reveals the percentage of individuals who would expect advice by each of the product sets listed.
Areas Consumers Would Expect Advice In A Full Financial Review
The younger generation expect mortgages to be covered by their financial adviser; women are more expectant for help on saving for their children, while men are more likely to prefer their financial adviser to provide them with taxation planning advice.
With the Retail Distribution Review (RDR) deadline (albeit moving) drawing nearer, it’s only a matter of time before many advisers will have to become much more transparent in discussing/making clients aware of the cost of advice delivery – if only, to justify their fees and charges.
As most are aware, for nigh on 300 years in Britain, the marketing and selling of financial products in the retail financial arena has been subsidised in the short-term by the manufacturers (in the form of a payment or commission); this cost is later recouped over time through the pricing inherent within a product and ultimately is a cost borne by the consumer.
The problem with this structure however, is that it has blinded consumers as to the real costs of producing, marketing, selling and ultimately applying these products to an individual’s situation via the advice process.
The above chart has been drawn from a new research study – the CoreData Consumer Advice Fee Threshold and Appetite Report.
This is a project outlining the tendencies of different age groups, sexes, non-advised investors and even of those already advised, to pay for advice.
Oddly, but understandably, a notable proportion of people who already have a full-time adviser believe the advice component of the process to be free.
The research reveals a clear sense of what people will pay for advice – a critical issue in for a post-RDR world.
Early this month saw the Treasury Select Committee (TSC) and the FSA come to loggerheads over a potential delay to the RDR reforms. The government select committee published a report lamenting the FSA’s lack of acceptance on its recommendations.
The TSC fears the supposed consumer benefits of RDR, namely of better choice and competition, will be compromised by the loss of advisers and firms to the industry; something the TSC deems a looming issue unless the radical new reforms are postponed by 12 months.
Under the surface this can be interpreted as ‘not enough people will be willing to pay for advice after more than a century of not doing so’…
However, at present, it seems the RDR will proceed within the current time frame regardless of the TSC throwing its toys out the pram.
Whether or not investors will be ready for a more transparent world of fees (and in many instances a shifted onus on them to pay through one way or another) is yet to be seen – this research suggests the outcome for the advice industry will not be pretty.
One Comment on “Mind the Gap”
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UK IFA says:
Good article – the most important bit (where all the value is added) is the strategy and ‘how to’ – the golf swing if you like.
Historically, the advice part was ‘free’ on the basis that the consumer bought the golf clubs (products) as well.
A re-education of the UK consumer is required so that advice/implementation and review are all paid for without the need for cross-subsidy from the product .
It is ironic that high upfront commissions are still available on protection policies and that commission is NOT being abolished post 31.12.2012 so cross-subsidy of the advice process will still remain for those that buy protection cover.