IFA reforms may result in higher fees
REFORMS designed to regulate the world of independent financial advisers will lead to higher costs for consumers who seek investment guidance, according to a survey by accountancy firm BDO.
The report suggests that 90 per cent of advisers expect their earnings to stay stable or increase after the reforms and claims that the new regulations “may change very little in terms of direct benefits to consumers”.
It also suggests that although the initial charge to the consumer will fall by 0.1 per cent of investment value, the overall cost of advice will increase as advisers compensate for lost revenue and increase ongoing charges by around 0.2 per cent of investment value.
The long-awaited Retail Distribution Review (RDR) aims to improve the quality of financial advice by banning financial advisers from earning commissions on the sales of savings plans and enforcing a minimum level of training.
Banning direct commissions from product providers is intended to improve the reliability of advice by removing incentives to recommend investments that are associated with high referral fees but offer a poor return for clients.
Alex Ellerton, financial services director at BDO, said: “The most prominent form of remuneration in a post-RDR world will simply be charges deducted from the customers’ premium by the product provider and passed back to the IFA – just the same way as commission works now.”
A spokesman for the Financial Services Authority said: “We strongly believe the RDR will raise professional standards, remove commission bias and help restore trust in the way people receive investment advice.”