From 31 December this year, advisers are no longer permitted to accept commissions from product providers for recommending retail investment products. Instead, as a result of the RDR, a charge for advice will have to be agreed upfront with the customer.
But, with advisers – tied and independent – required to disclose charges, customers may be “surprised” by the cost of advice and seek greater control over what they pay and to whom, the Deloitte report concludes.
“After many years of receiving ‘free’ advice, or advice which appeared to be free as a result of a commission-based adviser remuneration model, customers are likely to respond negatively to explicit charges for advice,” the study, Bridging the advice gap, reads.
Deloitte has based its findings on a survey of more than 2,000 UK adults conducted earlier this year.
According to the research, some 33% of adults with less than £50,000 in savings, and 32% of those with more than £50,000, indicated they would cease using advisers for all products if they were charged directly.
Additionally, while some will opt out of advice altogether, a greater number indicated they would not pay for advice at the prices likely to pre-dominate. More than half of those polled said they would reduce the number of times they used advisers if charged a fee between £400 and £600.
Deloitte concludes the adviser charging rules could leave up to 5.5 million people in the ‘advice gap’ – unable or unwilling to continue to access financial advice.
But the customers in this gap present a “major opportunity” for product providers, including insurance companies, investment managers and banks, it added.
It has identified four potential target segments: the ‘disenfranchised wealthy’; the ‘tech-savvy savers’; the ‘mass affluent orphans’; and the ‘mass market orphans’.
Providers should take the time to identify which segments are in its ‘sweet spot’ and then proceed with building the right mix of products, pricing and channels – such as via advisers – to cater for them.
