Most consumers think advisers are paid by commission

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Most consumers think advisers are paid by commission

Most consumers are still under the impression financial advisers are paid by commission, according to a member of the Financial Advice Working Group.

Nicky McCabe, head of investment trusts at Fidelity International and chairman of the working group’s advice and guidance sub-committee, made the comments while setting out the findings of the group’s consumer research.

The Financial Advice Working Group was set up by the Financial Conduct Authority to take forward some of the recommendations from the Financial Advice Market Review.

Ms McCabe said the group had carried out consumer research to find out people’s attitudes towards financial advice and guidance.

She said: “People’s knowledge of the consequences of the Retail Distribution Review was not well known.

“A lot of people still felt the advisers were getting some form of commission and it impacted their view of what they were recommended.

“That perception still has not changed.”

Ms McCabe also added that the phrase “personal recommendation” did not help matters, since most people surveyed interpreted it as a recommendation which was personal to the person giving it, rather than to the person receiving it.

She added that people’s understanding of the difference between advice and guidance was lacking.

In one instance, Ms McCabe said a consumer said advice was “what your father gives you”, meaning it could be safely ignored while guidance meant you would be guided through your finances from start to finish.

One of the phrases most often given by consumers when asked what they associated with guidance or advice was “Martin Lewis”, the founder of MoneySavingExpert, the research revealed.

Ms McCabe said: “Nearly every firm describes advice and guidance in different ways so it is no wonder that consumers are confused.

“Guidance is usually described in negative ways – ‘it is not advice’, ‘it is not a personal recommendation’ – and as a consequence it is not surprising that consumers come away wondering why they should bother with it.

“Consumers are facing a range of complex decisions and they go to a whole variety of sources. They do not necessarily think of this as advice or guidance, they just think of it as help.”

Ms McCabe said the working group had come up with standardised definitions, which effectively describe advice as “what you should do” and guidance as “what you could do” which had been submitted to the FCA and she encouraged the industry to start using these.

damian.fantato@ft.com