Article by Christina
Wealth Management Advisors across the country faced a raft of new rules back in 2023 designed to make financial advice fairer and better value for clients.
Firms were required to take a long look at the way they operated. Considering things like whether their products and services offered fair value to clients. Considering the way they communicated with clients and whether this was clear and concise. Looking at outcomes for customers and whether these were fair or should be changed. It was a significant exercise for all firms including smaller firms like ours. We then had to review the outcomes of any changes and how they had affected clients. The idea was to move the old Treating Clients Fairly requirements on to the next level.
One early outcome for example, was the FCA’s investigations into firms who had been charging clients for ongoing advice but not providing that advice when they should have been. The biggest culprit was market leader St James Place, who had to make provisions of millions to compensate customers. Other big firms were also investigated. All this seemed like a good outcome for customers. St James Place ended up changing their pricing structure across the board and significantly lowering their fees. Another positive.
However, there have been unintended consequences. As part of reviews into client relationships, many of the bigger firms came to the conclusion that customers with smaller investments weren’t worth dealing with. As a result, thousands of clients have had their relationships terminated.
This has also affected those clients on lower incomes. In Aviva’s Appetite for Advice report they found that over 20% of customers earning less than £35,000 were no longer being advised. That rose to 40% of customers earning between £35,000 and £55,000 and 30% of those earning up to £75,000.
Advice badly needed.
Overall, only 11% of people are receiving any form of financial advice. So, if the intended outcome was to make wealth management advisors reduce their client numbers and focus on the wealthier ones, then its succeeded. If the opposite was what the FCA expected, then its backfired.
Given that according to Threadneedle 61% of people say they find investing confusing, it looks like its backfired. That figure was only 44% back in 2015. 40% of people continue to say that they avoid investments because they are too complicated.
A survey by Pension Bee has also found that millions of people don’t have adequate pension savings. The average pension pot is £88,000 which will deliver just £18,000 in retirement income combined with the state pension. But the Pensions UK Retirement Living Standards benchmark says that people need £32,000 a year for an adequate lifestyle and £44,000 for a moderate lifestyle. Way short of the averages.
Will simplified advice fill the gap?
The FCA are hoping that the introduction of new rules to allow firms to provide simplified advice will provide the solution. However, according to research by TFAS Compliance Services over 70% of wealth management advisors have no plans to offer simplified advice to clients. In fact, only 7% of advisor firms said that they would be offering the new service.
For most advice firms, servicing existing clients was their top priority.
Firms pointed out that there were a number of opportunities going forward based on the increased demand for advice, along with advice on the latest changes to the pension and inheritance tax rules. There is also a big opportunity to advise on the looming intergenerational wealth transfer.
Wealth Management Advisors are highly rated by their clients.
Wealth Management Advisors themselves however have come out of the process with even stronger client relationships. The overall satisfaction rate has risen from 63% to 67%.
Although of those who weren’t satisfied with their adviser, over 30% of women thought that their advisor wasn’t very knowledgeable. They were also unhappy about proactive updates and explanations not being clear. From men’s perspective they tended to be most unhappy about the fees they were being charged.
Get more information.
If you need help from a Wealth Management Adviser then why not contact Christina today. She offers a free initial meeting to discuss your requirements and explain how our service works. You are under no obligation to use us after that if you don’t want to and we won’t pester you.
So why not call us today on 01282 614444 or e mail us enquiries@ccfps.co.uk or use our contact form online.
