Your IndustryApr 16 2014

Clients still underestimate advice costs post-RDR

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There is an urgent need for the financial services industry to work together to promote advice, Nick Turner has said, after research from NFU Mutual found fewer people are likely to seek advice and most underestimated the cost.

The director of sales and agency at the mutual lender issued the call after research commissioned by the insurer revealed 87 per cent of people have no idea what the RDR is and do not think upfront fees are worth paying for advice.

Before the RDR, 65 per cent of consumers surveyed by NFU Mutual said they would go to a financial adviser, but 15 months on just 56 per cent said they would take financial advice.

The research, which polled 2,000 consumers, found that people underestimated the cost of professional advice, with the average customer prepared to pay just £24.64 for an hour of an IFA’s time.

It also found that 30 per cent of customers do not want to pay a fee for financial advice up front and 25 per cent feel financial advice is not worth the money.

Mr Turner said: “While the momentum that RDR has created to drive up standards of professionalism will stand us in good stead, there is a risk that the increased transparency of cost it introduced has frightened some people from taking financial advice.

“The challenge we face is how we raise awareness among people about the importance of financial advice, when to take it, and how compare the price of it.”

He added that the introduction of free face-to-face guidance for those retiring, announced in the Budget last month, was an opportunity to work together.

He warned: “The challenge is to get everyone to agree and then pay to deliver a sustainable campaign that actually makes a difference. There is an opportunity for enormous promotion of financial advice now.”

Meanwhile other research commissioned by Pershing, a BNY Mellon company, painted a very different picture of the market.

Kevin Bonar, chief executive officer of Pershing, claimed the unbundling of fees has helped investors to understand remuneration better, although he admitted the subject of “price competition is still a complex issue”.

His firm’s 36-page report, Brave New World: An Investor Perspective of Wealth Management Services in an RDR world, claimed 42 per cent of consumers think it has become easier to understand how they pay for financial advice and services since RDR, while 37 per cent said it is easier to compare fees from different advisers and execution-only providers.

Sean McCann, chartered financial planner at London-based NFU Mutual, said: “As with everything you buy, price is what you pay and value is what you get. The right advice is just as important when you take money out of a pension or investment as when you’re deciding when and where to invest. Getting those critical decisions right can make thousands of pounds worth of difference.”