An interesting article appeared on my news feed this morning, from US magazine Financial Advisor.
The article described the findings of a study by a retirement market research firm called Hearts & Wallets.
In the study, called “Addressing the Elephant in Financial Services: Insights into How Older Investors Really Want to Receive, and Pay for, Investment and Personal Financial Advice,” they found a growing disconnect between what investors want from financial and investment advice, and what they are currently paying for these services.
The report found that investors are increasingly feeling let down by the financial and investment advice they receive, when these services are presented as ‘free’.
As in the UK market, the word ‘free’ really means ‘opportunity to earn commission’. There is no such thing as a free lunch and there is no such thing as ‘free’ financial or investment advice.
Chris Brown, principal for Hearts and Wallets, points out in the article that free advice comes with very little in the way of trust. He says: “If someone offered you free advice, how much trust would you have in that advice?”
He rightly points out that investors tend to be suspicious of the adviser’s motives, to sell them the product or service which pays them the most money.
Investors in the UK face similar issues to those highlighted in this US study.
Advisers are able to offer ‘free’ advice which is often a pretext for creating the opportunity to sell the investor a product which will generate commission.
The introduction of new regulations in the UK at the end of next year, as part of the FSA Retail Distribution Review, will improve the transparency of adviser remuneration. It will not however stop this practice of delivering ‘free’ advice in order to create the opportunity to sell remunerative products.
We find that increasingly investors are realising that free advice simply isn’t worth the price.
Photo credit: Flickr/loop_oh
