Advisers Plan to Drop Investors

Independent advisers have admitted to cutting services to their clients since regulation was introduced last year - and many are planning to drop further clients in the future

Emma Wall 17 October, 2014 | 8:51AM

Are you a commercially viable investor? Thanks to regulation in the advice industry you may find your business turned away, or worse still your portfolio dropped as advisers can no longer make the business case for your portfolio.

Before the introduction of the Retail Distribution Review last year – designed to make the financial advice market fairer and more transparent, reports surfaced warning investors about an “advice gap” – those investors that wished to take advise but who would no longer be attractive to advisers in the post regulation world.

In October 2012 a  survey commissioned by Allianz Global Investors found that two thirds of financial advisers said anyone who has less than £50,000 in disposable assets may end up unable to get professional help.

This is because they would either be unable to pay the upfront fees now required by the new advice model, or the percentage fee on a small portfolio would not be sufficient to cover increased costs faced by advisers.

Lee Robertson, a wealth manager at Investment Quorum said at the time that with fact-finding, risk profiling, report writing, submission, compliance requirements and implementation, it would mean an adviser will in all likelihood transact at a loss.

Now, new data from online advisory firm rplan reveals four in 10 advisers have dropped clients or cut down on the services they provide since the introduction of RDR – and a many more plan to drop clients over the next 12 months because they are no longer “commercially viable”.

Advisers admitted to rplan that they expected the advice gap to grow over the next 12 months.

Innovation in the Advice Market

While the traditional model of face to face advise may out-price those with smaller portfolios, there have been a range of new online based portfolio planning and wealth advisers offering low-cost alternatives. Websites such as Wealth Horizon, Nutmeg and Money on Toast offer a streamlined service for the tech savvy.

Speaking at this year’s Morningstar conference Chris Williams, founder of Wealth Horizon, said that technology is key to bridging the investment landscape.

“Clients are already using technology as part of their everyday lives and are increasingly looking for advice online. The next step for the industry is to ensure they are comfortable not only beginning their journeys online, but also going full circle and ending them online too,” he said.

The Government is widely expected to offer online and telephone solutions for the free advice everyone will be entitled to on retirement from April next year.

From April next year no one will have to buy an annuity, but with these new pension freedoms come responsibility and so the Government has tasked the advice industry with providing free guidance to all retirees known as the ‘guidance guarantee’.

Most people are expected to use these internet or phone based system for ease of access and least disruption. Face to face consultations will be on offer, but will cost the industry considerably more.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Emma Wall

Emma Wall  is Web Editor for Morningstar.co.uk.