Consumer Advice Fee Threshold Research
December 2011As we all know, the Retail Investment market in the United Kingdom has been steadily shuffling forwards towards the deadline cliff that is December 31, 2012.
From that date forward the Retail Distribution Review (RDR) is expected to begin in earnest. Aspects of the new requirements may be delayed somewhat, considering some final stipulations have yet to be cemented by the Financial Services Authority (FSA), though the hope is that these will be penned and allowed to dry in the 2012 Northern spring in time for the deadline still in December.
Regardless of whether it’s full steam ahead on January 1, 2013 or some point in the future thereafter, the FSA – the regulatory body brought RDR to the industry and arguably some businesses to their knees – will no longer exist as It is set to be rolled into a new entity – the Financial Conduct Authority (FCA).
That aside, the purpose of this study is to shed some light on how the regulatory changes, which are in fact some of the biggest changes to hit retail financial product distribution in over a century, are likely to have impact on advice and would-be advice seeking clients.
A great deal of the industry focus to date has been internal; how independent financial advisers (IFAs) will have to change the way they do business, how business models need to change and how funds and service providers need to price products and so on and so forth.
From January 2013, IFAs will not be able to take commission as a form of remuneration but instead will have to quote a fee for the advice given.
The regulatory rationale is that this (combined with greater transparency and disclosure) will significantly reduce the potential for conflicts of interest, that exist at present whereby there is a suspicion that the subsidised pricing of advice in the form of a commission payment (whether it be upfront or on-going) may lead advisers to favour products paying higher commission rather than products deemed in the best interests of clients.
So, aside from this industry navel-gazing, little has been said from the perspective of those who are supposed to benefit from this shake-up in regulation – i.e. consumers.
The CoreData Research Consumer Fee Threshold and Appetite report highlights the needs and expectations of consumers on whom the whole advice value chain depends. If people are not willing to pay for advice, then IFAs have no business, which in turn creates obvious issues for investment platforms and distribution issues for product manufacturers.
In this study, 1,020 consumers drills into their experiences with the financial advice profession (including those who do not currently engage with it), and includes the fundamental questions relating to consumers explicitly paying for advice.
In light of this, CoreData Research seeks to outline how this is likely to change in line with circumstances and considers the fee thresholds investors are liable, if at all, to stomach.
It is common knowledge that the world is ripe with misconceptions about financial advice, what it is worth and how it is paid for.
Commission paid to IFAs by product providers has often muddied the waters and in some cases allowed consumers to think advice was free.
One of the goals of RDR is to increase transparency, and considering the false impressions some consumers entertained when asked about the cost of financial advice, some form of reform is clearly needed.
In view of this, the study identifies the fee models consumers would favour in the new environment and their expectations to what type of advice they would receive, dependent on whether they were to visit their adviser for a one-off appointment or on an on-going basis.
Adviser feedback is tapped into as well, with respondents being asked what level of advice coverage they would expect their adviser to deliver to them by the end of the session.
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