By Claire West

Research from Deloitte, the business advisory firm, highlights how the introduction of the Retail Distribution Review (RDR) is likely to increase the UK’s financial advice gap.

A survey of more than 2,000 people conducted for Deloitte by YouGov shows consumers are generally unwilling to pay a fee for financial advice. The survey finds that:

84% of people are unaware of RDR and that consumers will pay a fee for advice when RDR is implemented on 31 December 2012;

More than half of all consumers (54%) would refuse financial advice if charged a fee;

47% would be likely to reduce the number of times they use financial advisers if charged a fee of between £400-£600 or
3% of invested assets;

Attitudes to paying for advice vary according to wealth and where consumers take advice.

Only 3% of people with no savings would be prepared to pay a fee for advice; 14% of people with savings above £50,000 would be prepared to pay a fee.

Bank customers are five times as likely (60%) as IFAs’ (12%) customers to reject paying fees for advice

Andrew Power, lead RDR partner at Deloitte, said:

“The RDR comes into effect on 31 December 2012 and financial advisers will be required to charge their customers a fee for advice rather than being paid by commission. Deloitte’s research indicates that many consumers, particularly in the mass market, are unwilling to pay such fees. As a result, the advice gap — the shortfall between the amount of advice required and that provided — is likely to increase as advisers leave the industry or focus on wealthier customers.

“These changes pose a huge challenge to banks, building societies, insurers and asset managers who will have to find new ways to distribute their products, and advisers who will have to persuade consumers of the benefits of paying for financial advice.”

Seb Cohen, head of insurance research, at Deloitte, said:

“Deloitte’s research highlights how consumers generally are unwilling to pay a fee for advice, but the figures vary between channels. Customers of banks and insurers are less likely to pay for advice than the customers of IFAs, and the lower the level of savings a consumer has the more likely they are to reject paying an advice fee.

“This is important because our research also highlighted the low level of savings among consumers. Nearly a third (29%) save nothing each month, nearly a fifth (17%) have no cash savings and almost half (45%) do not save into a pension.”

RDR comes into force from 31st December 2012, and changes the way consumers pay for financial advice. Commission paid to financial advisers will be banned and replaced by adviser charging, where consumers pay advisers a fee for advice.