Investors are benefiting from lower initial advice costs and the ban on indemnity commission. Advice costs now are typically 1% up front plus 1% for ongoing advice, or 3% up front with 0.5% to 0.75% for on-going advice.
Tumbling costs of advice
“In the past investors might have paid 6% or more in commission but now should not be paying more than 1% for straightforward investment advice,” said Danny Cox, head of financial planning at Hargreaves Lansdown.
There are other improvements too, such as how adviser remuneration is disclosed and paid for. There have also been growth in the number of DIY investor services, and in the number of users. Telephone advice services have become low cost, with a radical increase in investors who prefer to take advice by phone as opposed to face-to-face.
Despite improvements, there is a loitering dark side to RDR – the dreaded “advice-gap”. This is because the average financial adviser will not get out of bed for a client with less than £100,000, hence the advice gap.
However, according to Cox, DIY investing and telephone advice services are meeting investor needs here. “There is an investing gap in the UK, not an advice gap. People should be encouraged to invest whether they chose to take advice or not,” Cox said.
But no tumbling numbers of advisers
There is no evidence yet of a reduction in the number of financial advisers, but adviser numbers are expected to fall. While the FCA recently said the number of people authorised to give advice has increased by 5%, this is more likely to be due to an increase in the numbers of compliance and sales managers: pre-RDR speculation said as many as 30% of advisers would leave the industry.
Other losers to RDR in the past year have been insurance companies and smaller IFAs. The ban on indemnity commission has seen sales of insurance investment bonds plummet – Aviva sales are down 70%, Prudential down 20%, L&G no longer offers with-profits bonds.
Smaller IFAs continue to be confronted with the ongoing trend for consolidation as the increased costs of improving professional standards, capital adequacy and compliance, combined with reduced initial remuneration bites.
