According to a survey of financial advisers, commissioned by Allianz Global Investors, clients that hold less than £50,000 in liquid assets will present a profit challenge to 60% of advisers and stand every chance of losing out or having to pay more to access full service financial advice in the aftermath of RDR.
Within the group of 166 financial advisers, 60% said changes to the way they service clients were inevitable, with more than one in three (36%) planning to reduce service levels to smaller clients, while 16% will turn them away and 6% remain undecided about what to do with such clients.
Meanwhile, 14% of advisers have already made changes to charging structures to keep their smaller client base intact. This includes increasing fee rates either by percentage of assets, flat fee or charging an hourly rate for their time.
But 13% of advisers said they would continue to provide smaller clients with the current level of service even if it became loss making.
RDR fallout
Nick Smith, head of retail sales Europe (ex-Germany) at AllianzGI, said: "The RDR code, established to provide resilient, effective and transparent retirement and investment planning for the retail investment market, has attracted significant attention since its formation, yet the potential fallout, both advisory and financially, for smaller clients has largely gone unnoticed. Furthermore, this survey has to lead to questions about the sustainability of some advisory companies in the future.
"Our research indicates investors with less than £50,000 in assets will have decreased service levels or worse still, be left with no professional advice. Therefore, we believe it is time for advisers and the providers to look towards a solution to this challenge."
Another observation of AllianzGI is that clients are likely to have to pay more for the same level of financial advice post RDR.
Of those advisers already charging a standard hourly rate, 86% charge between £100 and £200, while the majority (55%) of advisers charging on a percentage fee basis charge between 0.5% and 0.75% and a further 29% charge between 0.76% and 1% of the portfolio.
“A client with a portfolio value of £30,000 that is being managed at a 0.75% fee rate is currently getting the equivalent of just over an hour’s worth of advice (£225) per annum according to average hourly service rates.
“Even for a fairly substantial portfolio of £50,000 in liquid assets, the current percentage fees in hourly time would equate to less than two hours of financial advice a year. This advice would typically need to cover a wide and complex range of advice including tax planning, pension provision and general administration,” concluded AllianzGI.
