The Retail Distribution Review (RDR), which was published by the Financial Services Authority, came into effect on 31 December 2012. A new attempt to make charging for financial advice more transparent, the review was met with fear and skepticism within the financial advisor circle at the same time as being recognised as a real attempt to create a level playing field between financial advisors and their clients.
Keen to make clients aware of what they’re paying, both now and in the future and what they’re going to get for their money, this review sent shockwaves through certain sectors of the financial advisor community. Nevertheless, recent research seems to be suggesting that a fair proportion of these fears were unwarranted.
Unbiased.co.uk, which describes itself as “the home of professional advice” as well as providing sources of financial advice reported a 9% increase in consumers searching for a financial advisor in the first quarter of this year compared to the same period last year. The precise nature of the advice sought by their client base was not disclosed, however they did announce that the majority of their clients wanted advice that was based on the charging of a fixed fee instead of percentages of their investments. It is widely recognised that one of the most positive aspects of up front fees is that there is neither an ongoing commitment to the advisor, nor the risk of nasty surprises down the investment road.
Despite this, on the flip side of the coin, E&Y Financial Services have disclosed that percentage fees are (not surprisingly) still the most desired way of getting paid amongst advisors, because working that way allows them to operate on a similar income basis as they did before.
Against this changing income structure and in some ways to add insult to injury for some advisors, 2013 has seen a record number of retail investment funds closing because the fund’s managers haven’t managed to beat the market. With a reported 136 fund closures in the first quarter of 2013 against 66 that closed during the same period last year (reported by Hargreaves Lansdown), the news simply isn’t good for managers that fail to deliver. The firm goes on to point out that back in 2007, there were just over 70 funds that were shut down and last year alone, 371 funds closed down. This raises the whole question about added value and whether, in fact, consumers would be better off in low cost tracker funds than in actively managed funds that typically (and understandably) cost significantly more.
So what does all this mean from the consumer’s point of view? There is no doubt that significant steps are being made to rid the industry of its seedy image of hidden charges at the same time as seeking out value from fund managers. But not everyone can afford to pay up front, so where does this leave them?
Consumer choice will always depend on the ability to pay and whether or not you are able to pay upfront may restrict your choice of advisor. Either way, one thing is for sure and that’s the fact that the industry is becoming more consumer-focused overall that it has been before, and that surely has to be good news all round?