Regulation  

Advice gap evidence mounts as a third admit clients will go

Further evidence has emerged of the oft-cited ‘advice gap’ that many say has been exacerbated by the Retail Distribution Review and is limiting access to advice for lower-value clients, as a fresh survey reveals up to a third of advisers may have clients they will cease servicing.

According to the latest ‘adviser snapshot’, publishing by Action Consulting, a third of advisers surveyed admit they have clients whom they will no longer actively service on “economic grounds” as they are of little or no value and “may cost more... than they contribute in income”.

The poll showed that the percentage of firms who feel the majority of their existing clients are “highly valued” stands at just over 50 per cent. About half of the advisers that responded said they had not segmented their client base post-RDR.

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The research follows on from a recent study by NMG Consulting on behalf of the Association of Professional Financial Advisers, which found that just less than half of advisers have turned away clients post-RDR.

Apfa said the figures meant that up to 60,000 clients may have been denied access to advice post-RDR. No figures were provided in Apfa’s research to show the number of clients that were being turned away pre-RDR.

That study followed another by Schroders, which found 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.

The Financial Conduct Authority responded strongly to the Apfa claims, with a spokesperson saying the regulator “does not recognise the industry Apfa is describing” and citing marginal growth in adviser numbers and a 5 per cent increase in adviser revenues in 2013.

It added that its own yet-to-be-published research, also conducted by NMG, revealed “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.”

Action Consulting’s research showed little variance in how advisers charge compared to the initial aftermath of RDR, with two-thirds saying they still charge a percentage based on assets invested.

Half of these advisers said the charges were broadly in keeping with what they received in commission pre-RDR, with the other half saying that charges were actually lower.

Previous research from the firm showed among 79 firms that gave a full breakdown of their fees, initial charges have fallen and ongoing costs have risen on average post-RDR, with the average initial fee charged for a £100,000 portfolio now 2.4 per cent and the average ongoing fee 0.82 per cent.

Advisers also showed some resistance to social media as a tool for communicating with clients. Nearly half said they have no plans to use Facebook, Twitter or other websites in the future, offering reasons such as:

• the potential benefit does not outweigh the effort of setting up and maintaining social media accounts

• it is not appropriate for client requirements

• they do not believe it will offer extra value to their business.