Middle Britain is being priced out of getting financial advice
The situation could get worse before it gets better as the watchdog's new rules come into effect, Danielle Levy reports
Saturday 04 January 2014
A year ago financial advisers were banned from taking commissions from new products they recommend. They must now charge a transparent fee direct to the customer for the advice provided. The effect of these rules, known as the Retail Distribution Review, has been that high street banks and a growing number of financial advisers have withdrawn services for those with less than £100,000. They argue that the cost of servicing this tier of clients has become too high.
The result has been what many are describing as an advice gap. And sadly, a recent survey carried out by Yorkshire Building Society suggests that it is widening. It found that one in four savers are finding it difficult to access or simply afford financial advice, with the average minimum investment amount set by advisers at £50,000.
This comes at a time when the retirement age continues to rise, making the need for long-term savings all the more important. Likewise, new rules concerning workplace pensions are encouraging individuals to take greater responsibility for their own pension pots.
The Conservative MP Mark Garnier, a member of the Treasury select committee, believes the advice gap is real, is growing, and will hit those most in need of financial guidance the hardest.
"There is no doubt about it. Whoever you talk to there seems to be a general consensus that unless you have £75,000 or a reasonable income – perhaps one that is similar to an MP at around £65,000 – people are not getting advice," Mr Garnier said.
While advice for wealthy individuals is much easier to come by, he says the problem is that it is the "nickel and dime" savers that need this advice the most.
Sadly the situation is the same for those looking for someone to manage their investment portfolio on their behalf. Brewin Dolphin – a firm that has built a reputation as an investment manager to Middle Britain – is withdrawing investment services for those with less than £50,000 to invest. Clients who are affected are being offered execution-only portfolios as an alternative. This means no advice is received and the individual has full responsibility for managing their money.
Stephen Ford, the head of investment management at Brewin Dolphin, said the company hoped to re-engage with these customers once it had developed a new proposition that was simplified, did not involve face-to-face advice and was more cost-effective for staff to deliver.
"The advice gap is real, it is here and it has opened up faster and wider than many expected, including ourselves," he said. "In some respects we have been creating our own internal advice gap for lower value clients, but we want to be part of the solution to the advice gap."
The advice gap is not a new concept. In the years that preceded the RDR rules coming in, it was predicted that advisers would leave the industry and/or shed smaller clients. With this in mind the Government set up the Money Advice Service (MAS), which provides free advice online and over the phone for consumers. Great idea, but sadly the service has come under fire from critics who say it is failing to engage with a wide enough audience.
In a recent report the Treasury Select Committee went so far as to brand it "not fit for purpose".
On a more positive note, a number of new businesses are seeking to close the gap. Whether you wish to engage with them comes down to whether you are a technophobe or technophile. They are predominantly online models that are lower cost and able to cater for those with smaller sums to invest.
Money on Toast, set up in 2012, offers advice on investments, pensions, insurance, and mortgages. The company is able to deliver advice at a lower cost by providing the entire advice process online. "Doughbot", an online robot, gathers information on the user via a questionnaire. A report is then created, based on the user's personal circumstances, and recommendations are made.
The company charges a one-off 1 per cent fee across all products if they are purchased. Users can opt to pay an optional 0.5 per cent ongoing fee to have their portfolio continually monitored. A £7.95 flat fee is charged for share trading with discounts available on fund purchases.
Senior partner Chris Nicholls said: "A service like ours can give people advice online which significantly lowers the cost associated and means you can pass the cost saving on to the consumer. You don't need to charge £150 an hour to speak to an adviser."
Hargreaves Lansdown is another business that is benefiting from the barriers to face-to-face advice that are emerging. Its "do it yourself" fund and stock trading platform Vantage continues to attract new customers, while its telephone advisory team – which deals with anyone with £20,000 plus – saw a 78 per cent rise in enquiries in 2013.
Danny Cox, the head of financial planning at Hargreaves, believes the substantial interest can be attributed to a desire among the public to feel that they have control over their assets, with the ability to view valuations online, 24 hours a day.
So is the advice gap simply a reflection of the fact that much of the financial services sector is undergoing profound change? Nick Hungerford of Nutmeg subscribes to this view. The company he founded in 2012 is another low cost online model. It offers investment management for those with as little as £1,000 through a range of portfolios that invest in index trackers. Charges start at 1 per cent for those investing between £1,000 and £25,000. They are then tiered, dropping to as low as 0.3 per cent for clients with £500,000.
Mr Hungerford expects financial advice will no longer be sought on an ongoing basis but rather for specific situations, such as setting up a pension or inheritance tax planning. He views this as a positive and expects the Retail Distribution Review will ultimately lead to better outcomes for consumers.
"In the future we will see the advice gap melting away and it will be filled with specialists who give certain advice and they will do this in a way that is cost-effective and with the right business model," he said.
If you are being priced out of receiving financial advice, fear not . There are a growing number of options available but don't be afraid to be selective and clear about what you are looking for. The way that consumers are engaging with financial advice is clearly evolving, but it will take time for certain sectors of the industry to catch up.
Danielle Levy is news editor at citywire.co.uk
Will your credit card rewards be scrapped following new EU rules on charges?
Buyers beware of new-build home headaches
Bargain Hunter: First Utility's Cosy deal lets you heat your home from anywhere
What would happen if you put a statistician in a casino with £1m?
10 tips for taking out a personal loan
- 1 Migrant crisis: Greek soldier saved 20 people singlehandedly off Rhodes beach
- 2 Sofyen Belamouadden murder: The inside story of a crime that horrified Britain
- 3 Company breaks open Apple Watch to discover what it says is 'planned obsolescence'
- 4 Aaron and Melissa Klein: Oregon anti-gay bakers ordered to pay $135,000 after refusing to make cake for same-sex wedding
- 5 UK weather: Britain braced for snow as arctic air mass moves in
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband
The sickening truth about food banks that the Tories don't want you to know
Migrant boat disaster: Ukip candidate mocks victims in sickening Twitter post
Nigel Farage wants the BBC to stop making programmes like Doctor Who, Strictly Come Dancing, and Top Gear
Global warming: Scientists say temperatures could rise by 6C by 2100 and call for action ahead of UN meeting in Paris
General Election 2015: Britain would become a 'communist dictatorship' under Ed Miliband and Nicola Sturgeon, claims wife of Michael Gove
iJobs Money & Business
£20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...
£20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...
£25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...
£45K - £55K (DOE) + Benefits: Guru Careers: We are seeking a full stack .NET D...
Day In a Page
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace