The 2014 5th annual ComPeer / JGFR Financial DIY report shows some 3 million adults have exited from having a professional financial adviser* in the past year. This follows a 2 million decline in 2012.
Far more people (57%) now consider themselves to have no financial adviser, up from 54% a year ago, and a jump of around 1.7 million adults to 29.5 million compared to 2012. Many will have benefitted from the growth in online information, research and guidance.
Increasing numbers of people are also turning to friends and family (up some 300,000 adults to around 7.7 million year-on-year) and to other sources – likely to reflect the rise in direct-to-consumer platforms, up 1.3 million to 1.8 million.
Greater regulation brought about by the Retail Distribution Review (RDR) resulting in falling numbers of advisers, together with a resistance by the public to paying fees for advice has transformed the structure of financial advice in the past two years.
Banks and wealth managers suffer most from client exodus
With further bank mis-selling revelations and subsequent write-offs during the year, trust in financial advice slumped for the second successive year. 3 out of 10 adults do not trust the quality of financial advice given, up from 22% in 2013 and 18% in 2011.
Banks (main financial services providers: MFSPs), many abandoning financial advice during 2013, along with wealth managers, have seen the biggest exodus of clients. There is little change in the proportion of people citing an IFA as their main financial adviser year-on-year (11%), despite the changeover to RDR.
The fall in use of financial advisers comes at a time when demand for savings / investment products has surged, especially for regular savings schemes, pensions and ISAs adding to the advice gap.
Advice fees less of an issue especially if bundled into the product cost
Among the 1 in 5 of the public who switched types of advice in 2013, charging is less of an issue than a year ago. In 2012 36% of people switched because of fees; in 2013 just 14% of adults cited fees. More people switched in 2013 because of poor investment performance (20%) or because of an adviser leaving (19%).
While more people appear to accept charging for investment advice, only 6% value financial advice sufficiently to pay £100-£200 an hour. Around 1 in 4 of adults prefers their investments to be managed for them, for which they are happy to pay an annual management fee. The majority of the public (57%) prefer the cost of financial advice to be bundled into the cost of the product.
More people turning to digital financial services
Increasingly digital – especially by way of mobile devises - is becoming the default option in accessing financial services, particularly among the young. Research by GfK NOP for JGFR in January found 61% of adults would go online by personal computer to research, purchase or change financial services / products, with 43% of adults citing using a mobile devise. More adults (14%) use their mobile phone for finance and investment research / transactions, up from 1 in 10 in 2012.
Direct-to-consumer platforms are changing the retail investment landscape with more people using them for share-dealing and investment. The Royal Mail privatisation attracted a wave of non-advised clients. Adults using an execution-only stockbroker grew by some 3 million in the year.
Pension pot control a growing aspect of retail financial services
Approaching 1 in 4 adults have control over how their pension pot is invested, up slightly on 2012, and a proportion set to grow on the back of auto-enrolment and more people having been switched into defined contribution schemes. Currently a majority of people with a pension pot do not have a financial adviser (53%), up from 45% in 2012. With more people entering the near, or at- retirement phases of their lives the lack of financial advice may impact on their future financial well-being.
Rising numbers of affluent dipping in and out of advice
In this year’s Financial DIY report the number of mass affluent and affluent / high net worth (HNW) individuals increased to some 14 million (27% of the adult population). Among the affluent / HNW group there is a drop in the proportion who are non-advised year-on-year, down from 58% to 45%, while among the mass affluent, more (49%) are non-advised, compared to 44% a year ago. In the former group there is a big jump in the use of execution-only services and platforms in the past year suggesting some dipping in and out of advice.
Greater demand for financial information and guidance, especially online
The growth in Financial DIY has been helped by the ever-increasing sources of information/ guidance / research available. The importance of search-engine optimisation is reflected in the use of search engines (favoured most overall, by 36% of adults) followed by business television / radio and newspapers (both 31%). Most sources saw year-on-year growth with more people visiting company websites/platforms and using their employer. While social media usage is little changed year-on-year, more people are using online blogs and discussion groups with a greater number of sources used.
Commented John Gilbert, Chief Executive of JGFR:
“This year’s report further highlights the shift away from professional advice to a mixture of nonprofessional advice and self-directed advice. Across financial services generally the rapid penetration of mobile devises is transforming consumer access and engagement. Having a mobile friendly portal is becoming essential to future success in both the advised and execution only sectors. In the coming year the fall in professional advisers may reverse as charging structures are revised to accommodate consumer preferences and new FCA approved models introduced. The advice gap may narrow in 2014.”
For more information please visit: http://www.jgfr.co.uk/ | @johngilbertJGFR
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