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Is cost eclipsing value?

Is cost eclipsing value?

Consumers are increasingly viewing cost as a key factor for advice, as value takes a back seat.

Research from both Boring Money and FE has suggested low costs are an integral factor for investors when considering upfront and ongoing fees.Boring Money’s Spring Census, revealed that just 8 per cent of consumers are prepared to pay more than £100 an hour for financial advice.

Further to this, 33 per cent of households with £100,000 to £150,000 in savings and investments said they would pay up to £50 per hour for advice – the same number said they would pay nothing.

“Costs are important but they are one of many considerations and certainty should not be the only factor,” said Alan Chan, independent financial adviser at London-based IFS Wealth and Pensions. Mr Chan added that solely focusing on cost is high risk. “This is true in every walk of life, not just in respect of choosing a fund, or a product, or an adviser. The industry has focused heavily on this issue around costs and it’s a dangerous path to consider while almost having total disregard for anything else.”

Research by FE concluded more than a fifth of investors would not pay more than 0.75 per cent per year in ongoing charges for an active UK equity fund, despite 90 per cent of market funds charging more than this. Even those who were unwilling to pay more than one per cent are alienating themselves from 30 per cent of these funds.

Hayley North, chartered financial planner at London-based advisers Rose and North, felt the regulator could do more to shine a spotlight on the value advisers provide. She said, “Very few people are aware of the cost of not taking advice, such as a missed enhanced annuity, transferring a plan with valuable guaranteed annuity rates or a defined benefit scheme. The FCA could highlight case studies of situations where people have gained not just peace of mind but also financial benefits from advice.”