Blog: What price financial advice post-RDR?

Financial advisers are in for a tough time next year but not as tough as the people they advise, writes Ian Henderson, creative director at marketing firm AML Group.

According to Ernst & Young’s 2011 radar report on the life and pensions industry, the number of financial advisers in the UK is going to shrink even more over the next couple of years than it already has.

The move to fee-based advice will put off customers unwilling to pay upfront charges (even if those charges are cheaper than under the commission system). To make ends meet, the remaining advisers will move upmarket, find new and more efficient business models, or both.

They may also have to join forces in the face of new market entrants and competition from self-directed consumers, banks and even supermarkets. Will buying shares in Tesco finally be as easy as buying your groceries there? It’s going to be tough.

But if advisers are in for a tough time, what about the advised? With fewer advisers around it’s going to be harder for consumers to get their attention, especially at the less affluent end of the market (who, it could be argued, are in most need of advice).

The upfront cost of advice (according to E&Y, at least £200 an hour to allow the adviser to break even) will push the typical bank customer away. And as E&Y points out, mass market advice models have not been show to work in the new environment. All this comes at a time when the breakdown of trust in the finance system makes good advice a more valuable commodity than ever. Which is pretty tough too.

Fee-based advice is of course a good thing, compared to the potential for self-interest and distortion of commission-based systems. It may well lead to a more efficient market for advice in the future.

But in the short term it’s looking like advisers and the advised alike are in for a tough time. So what can be done?

First, existing advice groups need to get their value propositions clear and invest in brand-building; as well as helping customers understand the fee-based offering, it will put their businesses in a stronger position in a consolidating market.

There must be a concerted effort – by firms themselves and by industry associations or regulators – to make clear how the new environment is designed to help consumers. Business models – from those in the market as well as new entrants – need close examination to find better ways of offering good advice and making it pay.

And in such a complex and confusing environment, there’s an essential role for those communication agencies that understand what’s going on; creating a simple, straightforward dialogue between advisers and the advised.

Marketers that get it right have a once in a lifetime opportunity to define and own the changed landscape of financial advice.