Barclays Capital has published a report claiming that £150,000 is becoming an approximate cut-off point for the provision of face-to-face advice, with the fee structure for personalised advice heading towards an ongoing 1 per cent of assets under management.
Post-2013 retail customers are being required to pay their IFA, in a direct fee structure, at least £1,500 a year to receive tailored advice, according to a 34-page report from Barclays which suggests automated models will take over for clients with less than £150,000 in investible assets.
This reveals far greater number of customers are finding themselves orphaned by their IFAs than research published by Schroders at the end of last year suggested. The firm claimed to have found the first hard evidence of advisers ditching smaller clients of less than £50,000 in assets.
The fund manager surveyed 328 investment advisers and found 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.
This trend in pricing is leading to the creation of a large advice service gap for the more mass market or lower mass affluent end of the market, the report concludes.
Retail customers are being orphaned by their IFA, Barclays found by talking to advisers who revealed they were seeking to rationalise their customer base and just concentrate on their more wealthy customers, perhaps from 200 or so down to a portfolio of 50 to 75.
In addition, Barclays stated many retail customers may be starting to question the value of advice. In reality, Barclays stated now that customers are being asked more directly for a cheque by their adviser, it is possible that many will balk at the fees demanded.
The findings come at a time when the FCA is consulting on new automated advice models to help close the advice gap, after Martin Wheatley claimed earlier this year online services were key to servicing smaller pot consumers.
The report also notes the FCA was of the opinion that unbundling fee structures would help lower fees to retail customers’ benefit.
Barclays analysts said: “We do not believe that this is a given across the industry, particularly for advice. In the short-term we have seen advisers attempt to re-price upwards and put more pressure on manufacturing fees.
“IFAs appear to be trying to increases their fees from the annuity stream of 50 basis points trail commission to 100 basis points of AUM off a smaller customer base.
“There is an argument that the quality of advice may have improved, but the reduced availability may also have gifted providers increased pricing power.”
The report concludes the RDR coupled with the shake-up of pensions cash favour asset managers and increase the importance of size and brand. St. James Place, Hargreaves Lansdown, Schroders and Legal & General were identified as potential beneficiaries.