Consumers Clueless Over RDR, Fees A Huge Turn Off - Deloitte

Wendy Spires

31 July 2012

The UK regulator’s Retail Distribution Review package of reforms may have the unintended consequence of increasing the “financial advice gap” since large swathes of consumers are simply unwilling to pay for previously “free” advice, new Deloitte research reveals.

The Financial Services Authority’s RDR reforms will outlaw the use of commission payments when it comes into effect at the start of next year. The move to fee-based advice may be intended to ensure its objectivity, but Deloitte’s study suggests that the change might turn many investors completely off of obtaining any advice at all.

Having surveyed some 2,000 consumers, Deloitte found that 84 per cent of people are unaware of the RDR and that consumers will pay a fee for advice following its implementation.

More disturbingly for the UK advisory industry was the finding that over half of respondents would refuse financial advice if they were to be charged a fee. The frequency with which consumers will seek advice also looks set to fall: 47 per cent of those polled said they would reduce the number of times they sought advice if that advice entailed a fee of between £400 and £600, or 3 per cent of invested assets.

As might be expected, attitudes towards paying for financial advice varied according to wealth. Of those people with no savings, only 3 per cent of people would be prepared to pay for advice while this figure rose to 14 per cent for those with savings above £50,000.

The survey also identified real reluctance among bank customers to pay fees, finding that they are almost five times as likely to reject paying fees for advice than IFA clients .

Deloitte predicts that as a result of the RDR the financial advice gap – the shortfall between the amount of advice required and that provided – is likely to increase significantly as firms focus more on the wealthier end of the client scale. Many also predict an exodus of advisors from the industry due to factors such as an ever-increasing compliance burden. Indeed, a new survey by the IFA network Tenet has predicted a 30 per cent drop in advisor numbers as a result of the Retail Distribution Review.