10Jan

The head of a financial advisers’ trade association has raised concerns over the number of people in the UK who are having difficulty accessing financial advice – the so-called ‘advice gap’. In a review of the year posted on the website of the Association of Professional Financial Advisers, the organisation’s Director General, Chris Hannant, said that he believed that almost 60,000 people may have been turned away by financial advisers in 2013.

The Retail Distribution Review (RDR), which came into force at the start of 2013, banned the payment of commission by product providers to investment advisers. Advisers can now only be remunerated via fees paid by the client. It was always feared that this would mean that, in order to remain profitable, advisers would be forced to stop seeing clients whose income and/or assets were below a set level.

The costs of complying with regulatory obligations have been increasing for many years. Some say that this additional regulation is definitely necessary – one only needs to read the newspapers to hear about misconduct in the financial services industry on a regular basis. However, the costs of regulation have had an impact. It was the early to mid 2000s when many traditional life insurance companies ceased their home service operations, spelling the end of ‘the man from the Pru’ and other company advisers. More recently, the major high street banks have started restricting the advice services offered in their branches. Barclays, Co-operative Bank, Yorkshire Bank and Clydesdale Bank are some of those who have ceased offering branch advice completely, while banks such as HSBC restrict their advice to higher net worth clients. Financial adviser numbers fell by 3,000 just after the implementation of RDR, and many of this number are likely to have been bank advisers.

Now that it is more difficult to obtain advice from insurance companies and banks, it is a real concern that many ‘mass market’ clients have nowhere to go to seek advice. Levels of financial literacy amongst the general public remain low, leaving many people uncomfortable about taking a do-it-yourself approach to their finances.

The Money Advice Service (MAS) was set up by government to offer general advice on financial matters to the public via its website, face to face and via telephone. In theory, organisations such as the MAS would have an important role to play in closing the advice gap, but the MAS’s performance has been much criticised by bodies such as the Treasury Select Committee and the National Audit Office, as well as by the financial advisers whose levies fund the service.

In the same bulletin, Mr Hannant said that his association continues to campaign for reductions in authorisation fees and levies to fund bodies such as the MAS.

The advice gap issue has previously attracted the attention of Martin Wheatley, chief executive of the regulator the Financial Conduct Authority. Appearing before the Treasury Select Committee in September 2013, he said: “It is a concern that people with portfolios below £50,000 to £100,000 are not getting the same service they were getting.” He went on to recognise the issue of advisers remaining profitable by adding: “Most advisers have worked out you can’t provide a fully advised service without five or six hours work, and that costs money.”