A new study has revealed for the first time the extent to which the Retail Distribution Review has exacerbated the ‘advice gap’, with a survey of investment advisers showing intermediaries have turned away approximately 60,000 clients in 2013 that they felt would not get value for money.
The figures, compiled by NMG Consulting, reveal 47 per cent of the 328 investment advisers that took part in the survey have turned away clients during 2013 on the basis the cost of the service is not warranted for their needs.
The Association of Professional Financial Advisers (Apfa), which commissioned the research, also highlighted the report’s finding that 40 per cent of the advisers who turned down business had sent away five or more clients in the year.
Last week fund management group Schroders claimed to have found the first hard evidence of the post-RDR advice gap, with a survey among a similar number of advisers it works with revealing that 14 per cent had formally asked clients to leave their practice in the past 12 months.
Of those asked to leave, three quarters had a portfolio of less than £50,000.
Chris Hannant, director general of Apfa, said: “As a result of the implementation of RDR financial advice firms are more focussed on costs.
“Clients’ fees need to reflect the cost of providing the service, while at the same time RDR has added to the operating cost of firms due to the resource needed to comply with the new rules. As a result advice is now less viable for some.
“The consequences of this are becoming clear. Based on the NMG research, we estimate that nearly 60,000 customers have been turned away so far this year - priced out of professional financial advice.”
Apfa said the findings emphasised the need for the regulator to do more to reduce the cost burden on advisers.
In September the trade body called for the regulator to offer advisers a ‘regulatory dividend’ to reflect their lower risk they represent compared to larger financial services firms, which it said could be achieved by streamlining data collection and increasing compensation scheme thresholds.
Mr Hannant said: “Until the FCA addresses the issue of the cost of regulation the situation will persist; advisers will service fewer clients and fewer people in the UK will have access to advice.
“A regulatory dividend is required. The regulatory overhead is too high for a profession that is now better qualified and poses less risk.
“Reporting requirements should be streamlined and FCA fees should fall to reflect the reduced risk to consumers and shrinking resource required to supervise advice firms. By reducing the overall cost of advice the regulator can increase access to advice.”
A spokesperson for the FCA said: “We don’t recognise the industry that Apfa is describing. We know that adviser numbers have actually risen since RDR came into effect. Recent research from NMG has shown that advisers have seen, on average, a 5 per cent increase in income in 2013.
“The same research also found that the vast majority of consumers with assets to invest, even relatively small amounts, were comfortable with paying fees in line with those charged by leading firms in the industry.
“It is only a year since RDR came into effect. The reforms were major and were always going to result in change. We have committed to thorough research into the effects of RDR.”
