Clients are already beginning to turn away from financial advisers in favour of perceived ‘free’ execution-only services, one adviser has observed.
Ian Osang, partner at Ingard Independent Financial Management, said he has already seen several cases this year where clients are choosing to go via execution-only brokers, even if the actual cost is the same or higher.
“We are already finding people do not want us to look at their retirement options and receive advice because they do not want to pay a fee, even after we explain that the non-advised companies are paid commission, which affects what the client receives,” he said.
“Unless commission is banned for non-advised companies, we are going to see a massive increase in those making important at-retirement decisions without taking advice because the RDR plays into the hands of non-advised companies.”
Mr Osang said he is concerned that an increase in non-advised sales for retirement solutions could cause problems in the future. In cases where a joint-life annuity would be most appropriate, he added, somebody going through an execution-only service might be tempted by a higher single-life rate and not properly consider what would happen to their spouse.
“When you buy the wrong annuity, you don’t find out until later,” he said. “Five or 10 years down the line, people are going to start dying and widows will start asking why their income has just stopped. People are going to be buying the wrong products. In 10 years, it is all going to be chaos.”
Mr Osang criticised the execution-only annuity business model, saying it is not in the client’s best interests for them to be allowed to continue working on a commission model when advisers must agree fees.
“It is like banning firearms to anyone except gang members and drug dealers,” he said, “Advisers generally don’t abuse the system as much as sales companies. Their job is getting the sale, our job is helping the client.”