The question of ‘trust’ in financial services has always been a sticky subject, and nowhere has this been more of an issue than with financial advisers. With new legislation on the horizon, will that trust return?
Poor financial advice can be devastating. Stories about mis-sold investments, such as Arch Cru, where 15,000 people lost out on thousands of pounds because they were told the highly risky investment was low-risk, are common.
But a new piece of legislation – the Retail Distribution Review – aims to stamp out bad practice.
As of next January, all independent financial advisers (IFA) will have to be qualified to a certain level and make sure the way their clients pay is transparent. But there are still concerns that the Retail Distribution Review isn’t the right plaster to fix the IFA industry.
For starters, many IFAs themselves have made it clear that they don’t want to undergo the changes enforced by the Retail Distribution Review. Many of them have dragged their heels over having to take exams and how they’ll be remunerated.
Compared with other countries like South Africa and Australia, where advisers have embraced regulatory change, many UK IFAs have made it clear they’d rather stick with the status quo than get a better deal for consumers. That’s not exactly heartening.
Restricted advice – solution or problem?
As my colleague Matt Woodington said in a previous Conversation on financial advice, the risk of less wealthy people getting priced out of advice is a very real one, as IFAs may choose to work with clients who can pay higher fees in the face of a commission ban.
The creation of a ‘restricted’ label, for IFAs who choose to advise on either just one area or will recommend products from a limited number of providers, has been touted by the industry as a solution to pricing out less wealthy clients.
Restricted advice can take two forms: some advisers will be restricted by advice type, like pensions, while some will be restricted by product type, e.g. just unit trusts. Their narrower focus means they will be less costly.
But restricted advice could leave us exactly where we started. Some of these advisers will essentially be salesmen selling a couple of providers’ products. Banks may step into the fold, but their history of advice has been chequered, to say the least.
And if restricted advisers are using a selection of providers rather than being whole-of-market, what way is there of checking on how they chose those providers? There’s still room for bias.
Are you a DIY investor?
So what’s the solution? We’ve talked about how Which? has been involved in developing a new British Standard for Financial Planning and Advice Services, which sets a framework for the delivery of financial advice and should give you the assurance that the adviser you’ve chosen meets a high benchmark.
There’s also the DIY option – using online tools to manage your own finances. But the concern that many of us may not know enough about investment risk remains pertinent.
Do you think the Retail Distribution Review will benefit consumers? Would you consider using a restricted adviser, or taking your finances into your own hands?
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