Kim North: RDR effects will continue to tell the good from bad

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As we enjoy a glorious British summer, it is pleasing that financial sectors are on the up.

According to new research from Merrill Lynch, 72 per cent of fund managers believe the world economy will improve in the next year. Mortgage lending has improved compared to this time last year and is up 30 per cent. This reminds me of the excellent film UP but let us hope the financial balloons do not burst. 

Although the number of advisers is on the increase, with the FCA quoting a rise of 6 per cent from the start of the year to the end of July to 21,684 registered individuals, we need more advisers as market conditions improve.

Adviser firms are now settling in to the RDR, so the hope is further change to financial distribution by the FCA does not cause advisers to leave the industry. Mark my words, the RDR changes will come as the consumer research is showing that trust in financial services is at an all-time low: this month’s CFA Institute’s Investor Trust study revealed that only a third of British investors had faith in the financial services industry.

There is an increased offering online for both products and financial advice and many successful firms are modifying their offerings to fill the advise gap created by the RDR for those who are unwilling to pay fees.

As in all business sectors, some businesses see great success while others fail. Hargreaves Lansdown, for example, should see further success with its telephone-based advice proposition for those with £20,000 or more to invest. Its whole of market independent advice is offered on the basis of a 1 per cent initial and 0.5 per cent recurring charge.

Other businesses will not fare so well. Ivan Massow’s good, in theory, business Pay Me My was set up in September 2011 and offered customers a rebate of future trail commission charged by other advisers in return for retaining a percentage of the rebate but closed earlier this month as the firm was not profitable enough to continue.

I have always found investing clients are not aware that trail commission is paid and even when they do, know as long as the fund performs as it should, the client is happy that the trial commission continues to be paid.

As trail commission is gradually turned off from pre-RDR business, the FCA is looking at the distinction between non-advised commission sales and advised sales. The RDR and the continuing lifestyle preference to run our lives online has driven the mass market to use online non-advised offerings in ever-greater numbers – which are paid by commission. If the FCA takes the commission away from non-advised sales, where oh where is the advisory charging avoiding public expected to go to buy financial products?

It is good news that the ABI is publishing best-buy annuity tables to help those who don’t want to pay fees. It would be even better if the ABI provided non-advised guidance alongside the comparative annuity tables.

Impaired annuitants and older pension plans with guaranteed annuities should be advised before the open market option is taken. Annuity purchase advice is not simple and should be at least guided. 

The ABI site does not mention how important it is to take a spouse’s annuity, the effect on the annuity paid if tax-free cash is taken or how indexation and/or a guaranteed period should be considered. 

The quality of online financial guidance needs to improve across the board.

Kim North (kim@techandtech.co.uk) is director of guidetoadvice.co.uk