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

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as the Retail Distribution Review, has been that high street banks and a growing number of financial advisers have withdrawn services for those with less than £100,000.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

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

News
people
Sport
FootballGerman sparks three goals in four minutes at favourite No 10 role
News
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
Sport
A long jumper competes in the 80-to-84-year-old age division at the 2007 World Masters Championships
athletics
PROMOTED VIDEO
Sport
Radamel Falcao was forced to withdraw from the World Cup after undergoing surgery
premier leagueExclusive: Reds have agreement with Monaco
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvHe is only remaining member of original cast
Life and Style
Walking tall: unlike some, Donatella Versace showed a strong and vibrant collection
fashionAlexander Fury on the staid Italian clothing industry
Arts and Entertainment
Gregory Porter learnt about his father’s voice at his funeral
music
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
Life and Style
Children at the Leytonstone branch of the Homeless Children's Aid and Adoption Society tuck into their harvest festival gifts, in October 1936
food + drinkThe harvest festival is back, but forget cans of tuna and packets of instant mash
Sport
Lewis Hamilton will start the Singapore Grand Prix from pole, with Nico Rosberg second and Daniel Ricciardo third
F1... for floodlit Singapore Grand Prix
New Articles
i100
Life and Style
Couples have been having sex less in 2014, according to a new survey
life
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Senior BA - Motor and Home Insurance

    £400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

    Market Risk & Control Manager

    Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

    SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

    £320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Head of Audit

    To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

    Day In a Page

    Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

    Despite the result, this is the end of the status quo

    Boyd Tonkin on the fall-out from the Scottish referendum
    Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

    Manolo Blahnik: Flats, Englishness, and Mary Beard

    The shoe designer who has been dubbed 'the patron saint of the stiletto'
    The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

    Scrambled eggs and LSD

    Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
    'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

    'Normcore': Blending in is the new standing out

    Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
    Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

    New leading ladies of dance fight back

    How female vocalists are now writing their own hits
    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam