Fidelity Worldwide Investment

Fidelity Worldwide Investment

How to promote financial health in a post-RDR world

Synopsis:

New UK regulation now means that UK consumers will now have to pay a fee for financial advice. However many say that they will be unwilling to pay for such advice, which potentially leaves many millions will fall in to the "advice gap" when it comes to their finances. However, many would be willing to receive financial guidance from the finance industry - these people make up the Guidance Gap.

Background

On January 1 2013 the Retail Distribution Review (RDR) came into force in the UK, changing the way that financial advice is given and paid for. Fidelity Worldwide Investment (FWI), an asset management firm commissioned Cass Consulting to look at the way British savers and investors have reacted to the RDR and specifically to its new charging regime.

Consultancy

FWI and Cass Consulting engaged polling company, YouGov, to survey 2,060 people who were representative of the UK's population as a whole, to see whether the prospect of paying for advice will change their attitude towards investment and savings. The survey found that just 14% of UK adults were "likely" to pay for financial advice, and that 53% of people were "unlikely" to.

Some said that they were unwilling to pay anything for a service that they had previously considered to be free. The evidence suggests that others would be put off by the amounts that advisors will charge: 58 per cent of respondents said that they would only be willing to pay "up to £50 per hour" for financial advice, compared with the mean hourly fee of the advisors surveyed of £165 per hour.

Because only 21% of the current investors surveyed said that they had a "good" understanding of savings and investment products, and the same number "little or no" understanding, the report concluded that their unwillingness to use advisors in a post-RDR world could lead to a severe "advice gap" when it comes to finances: 43 million people in the UK will be without financial advice, a number that is likely to increase over time.

This, said the report, could seriously affect people's "financial health".

Consequences

Given this worrying scenario, the report then explored whether the personal finance industry, employers and advisor firms could provide investors with the financial guidance that they will need in the future to make their own investment decisions. Overall, 57% of consumers currently engaged in the process of saving and investing said that they would be "likely" to use such a financial guidance service.

Of those consumers that were not currently engaged in the process of saving and investing - a group that makes up 56% of the UK's population, or 28 million people - 55% said that they would be "unlikely" to pay for financial advice and 30% said that they "wouldn't know where to start" looking for information. But 37% said they would consider using a "jargon-free website" for financial guidance.

So, straightforward, freely-available financial guidance would encourage both current investors and non-investors to take better care of their finances.

Download the full report: The Guidance Gap - An investigation of the UK's post-RDR savings and investment landscape

Cass consultant:

Professor Andrew Clare, Professor of Asset Management, Cass Business School

Professor Clare was formerly a Senior Research Manager in the Monetary Analysis wing of the Bank of England, which supported the Monetary Policy Committee. He serves on the investment committee of the £4bn GEC Marconi pension plan, and is a trustee and Chairman of the Investment Committee of the £2.0bn Magnox Electric Group Pension scheme.

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