Cost as an obstacle to advice
As part of Financial Planning Week 2010, the Institute of Financial Planning has published research suggesting that cost is the biggest obstacle to seeking advice.
The latest Financial Planning Week survey found that 28% of people cited cost as the biggest barrier to getting financial advice.
18% said that lack of trust was the main obstacle.
The cost of financial advice has long been rather mysterious, with many advisers spending years convincing their clients that advice is somehow ‘free’.
The cost of financial advice has traditionally been cross-subsidised by the payment of commission to the financial adviser when they recommend the sale of a financial product. This means that some financial advisers only get paid if they recommend a commission paying financial product.
Of course investors always pay for commission, as this is funded by higher product charges.
The potential for bias within this system means that a growing number of financial advisers and planners, including Informed Choice, use a more transparent remuneration structure.
Since 2004, we have charged our clients separately for the cost of advice, implementation and review services. These charges are agreed up front with our clients, in the form of a written engagement letter, and we are flexible about how our charges are paid; either by direct fee or through the deduction of charges from any product.
By charging separately in each area of the service we provide, we remove the potential for bias to recommend a commission paying financial product. In many cases, the right course of action is to take no action, or at least to recommend an option that does not result in the payment of commission.
From the end of 2012, the Financial Services Authority (FSA) is abolishing the payment of commissions to advisers, so those financial advisers still working on this basis are on borrowed time.
The new rules from 1st January 2013, being introduced as part of the Retail Distribution Review (RDR), do not mean that financial advisers will have to charge an explicit fee for advice, but they will need to be very clear about where their remuneration will come from, ahead of the provision of any services.
One thing we do still share in common with most financial advisers is offering a first meeting at our expense and with no obligation. We feel this is important to offer, as it gives both parties an opportunity to find out about the other, without incurring charges.
If cost is an obstacle to seeking financial advice for 28% of investors, as suggested by this Financial Planning Week survey, then working with a financial adviser who has a transparent and unbiased charging structure is a great way to overcome this barrier.
Photo credit: Flickr/Dominic’s pics