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Arch Cru proves advice is not always the answer: Hargreaves

Regular rhetoric espousing the view that “advice is the only and best answer” and that dismisses non-advised processes as high-risk ignores the inherent risks with advice that have been exposed through scandals such as Arch Cru, according to Hargreaves Lansdown.

Speaking to FTAdviser, Danny Cox, head of advice at the firm, whose business model is based largely around non-advised sales, also highlighted sales shifts since the Retail Distribution Review as confirming previous commission bias.

He said issues such as these, exacerbated by the move to fees in the post-RDR world, have pushed a number of people to go ‘DIY’ and that for many this could be a more suitable route.

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He said: “The cliff-edge fall in investment bond sales this year doesn’t reflect well on advisers. How many non-advised clients bought Arch Cru? Hardly any, and none through HL Vantage.”

Mr Cox flagged up that if an investor does not believe advice is right for them, there is little chance that they will engage properly with an advisory process.

He said: “More importantly, what are the chances of them wanting to pay advisory fees for a service they don’t value? About zero I would have thought.

“Non-advised clients do risk mis-buying. That’s why non-advised services like HL’s work hard to ensure investors have the right information and risk warnings before decisions are made and importantly offer an advice route if they want to take it.”

Like other platforms, Mr Cox believes that next year will be tipping point for investment charges, stating that Hargreaves Lansdown is driving down the cost of investing.

He said: “We are using our negotiating power to reduce the fund management charges for the benefit of the investor.

“Ignore the arguments from those around multiple share class adding complexity. We are in the middle of a shift in power. The pricing control is being taken from the fund groups and placed in the hands of the distributors.

“In 2014 we will continue to see the pricing power shift from the fund groups to the distributors and the price of the investment fund will only go one way – and that’s down - to the benefit of the investor.”

Mr Cox added that other platforms will see the deals that the firm is able to secure for clients and will ask for the same terms.

He said: “If they are given the same price, we will be going back to the fund groups again and the revolving negotiating door will become a virtuous circle for the investor’s benefit. This is healthy competition.”

Reflecting on the last year, Mr Cox says Hargreaves has had an excellent year, as it has been able to capitalise on the shift towards DIY investing and focused advice, whilst the RDR has seen the demise of the bancassurer pushing more clients to Hargreaves.

He said: “The increase we have seen in transfers from advisor platforms has evidenced this shift from advice to non-advice as well as the growth in our client numbers and assets under administration and management.”