23rd July 2013
Following the biggest shake-up of the investment industry in decades, one in five of us who have never before sought the help of a financial adviser are now intending to do so according to Axa Wealth writes Philip Scott.
Research conducted by YouGov on behalf of the group found that 40 per cent of UK adults are not confident managing their finances and as a result 19 per cent of consumers who have not sought financial advice in the past are gearing up to do so to ensure they have enough cash in retirement.
The subject of financial advice has been a hot topic since the start of 2013, when the big reform of financial services the Retail Distribution Review came into force.
One of the consequences of the new rules is that financial advisers are now banned from being paid commission by investment fund groups for recommending their products to their clients. The watchdog brought in these rules in the belief that some advisers were recommending some products to earn the biggest commissions. The regulator, now called the Financial Conduct Authority, is also worried that the commission system encouraged advisers to always recommend clients did something in terms of buying a product when the best advice might have been to pay down debt for example.
The new system means clients have to pay upfront for advice, either via a pre-agreed fee as a percentage of assets or an hourly fee. While Axa Wealth believes a lack of confidence in retirement planning will see a surge in consumers seeking out advice for the first time, other organisations believe the new rules have ‘orphaned’ millions who had previously used a financial adviser, simply because paying upfront is less appealing.
Consultancy giant Deloitte concluded in a report issued late 2012, that the RDR could leave more than 5 million financially orphaned as advisers and have decided to prioritise clients who had a considerable amount of wealth to invest, to defend their profits.
But Axa believes that investors with no experience of the pre-RDR financial advice world are well placed to benefit from the full financial and lifestyle planning services offered by advisers.
Nick Elphick, managing director of Specialist Products, AXA Wealth, says: “One of the key drivers behind the RDR was to establish financial advice as a profession akin to solicitors or doctors and as a credible financial support network. With one in five suggesting they will seek financial advice for the first time, now is the time to ensure as much as possible is done to promote the benefits of professional financial advice and long-term saving more widely.”
It is worth remembering that despite the misselling scandals that have sullied the profession, there are plenty of good IFAs out there. Many advisers worth their salt will also be happy to have an initial consultation with you free of charge. Visit www.unbiased.co.uk to find an independent financial adviser in your area suitable for your needs.
If you are seeking independent financial advice for the first time, or if you are still using your adviser, consider the factors below.
What are the costs?
Under the new rules, advisers can either charge by the hour or via a percentage fee. Check what suits you better. Paying by the hour could be expensive if your needs are relatively simple, as the average rate is circa £150 for 60 minutes. Tell your adviser what you want to achieve and work out the best and most appropriate deal for your needs.
How much service should I get?
One thing advisers have been accused of in the past is recommending a set of investments to a customer, pocketing the commission from the fund provider and providing little to zero on-going service. Ask what level of service and attention you can expect. Set out your goals; is it saving for your children or for your retirement? Look at what sort of timeline you wish to achieve them in. Ask your adviser how often they will review your circumstances with you. The adviser should provide a realistic time horizon during which they are achievable, what level of service is likely to be required and what the likely costs are going to be.
Is your adviser actually fully independent?
Post the introduction of the RDR, advisers must declare whether they are either ‘independent’ or ‘restricted’. Independent financial advisers are able to recommend products from across the market from any provider but restricted advisers have a limited selection of products they can offer from a limited set of providers. Experts recommend seeking out an independent adviser but if your adviser is tied to only a number of providers, ask them whether they can meet all your needs when they have a smaller selection of tools and funds at their disposal.
How experienced is your adviser?
Another goal of the new rules was to raise professional standards among financial advisers. Ask them what level of qualifications they have achieved. Do not be afraid to ask what they have done for others in your circumstances, it should at least give you a general benchmark of what to expect. It is worth remembering that many advisers prefer a holistic approach to financial planning, they may not be investment experts, and may even outsource that service to another group. Ensure you know exactly where you stand in terms of what they are offering.