KPMG raises concerns over “play it safe” advisers

Financial services consultancy KPMG has voiced concerns over the impact of regulation on advice for long-term savers, in its latest report on UK wealth management.

According to KPMG, regulatory changes could lead to some advisers “shying away” from providing advice, offering instead lower risk products.

Tom Brown, European head of investment management at KPMG, says: “Whilst lower risk strategies will be appropriate for many clients, particularly those at, or near retirement, there will be clients who are at a stage of life when they could be taking more risk with some of their investments, to improve longer term rewards and meet their retirement aspirations.

“The long term policy impact on 2030 retirees, who are now in their 40s and should be building their long-term savings, could be significant.”

Brown says many advisers fear punishment by the Financial Services Authority for mis-selling riskier products.

He warns: “If regulation steers financial advisers to offer lower risk products across the board, we may end up with a situation where investors must either save more or accept that they will be disappointed with their long-term returns.”

The report also highlighted the impact of increasing advice costs under the new regulatory regime, which could encourage younder investors “to shun professional advice” and manage their own portfolios.

Brown says: “It is concerning that many everyday investors don’t use or see the value of financial advice, and on the whole are unwilling to pay for it.

“As the onus is increasingly left to the individual to make provisions for their long-term savings, it is alarming that people are likely to spend more on a plumber than on financial advice, which could set them up for retirement.”

He adds: “Since 2008 – for the first time in 20 years – costs are rising faster than revenues and we predict that if revenues fall by another 15%, close to one third of wealth managers will be making a loss.

“As profitability is challenged, it is inevitable that businesses will be passing on the some additional costs to clients, which will unfortunately further discourage investors from getting financial advice.”