From next year, new regulation states that financial advisers must charge people a fee for advice rather than earn money from commission paid by the investment company.
However, investors are generally in the dark about this new rule and there is strong evidence to suggest that they will be put off by fees.
Tom Russell, Director of InvestSmart said:
“It’s out with commission and in with fees, but our research suggests that many investors will be reluctant to pay for advice. This will have the unintended consequence of driving people away from traditional financial advisers and into the arms of ‘DIY’ websites, where you make your own decisions.
"In our experience, most people genuinely still need help with their investments because it is a complicated area. We fear that a generation of people relying on the internet, social media and friends and family will not have backup if they make the wrong decisions.”
InvestSmart’s research showed that one in three of investors would pay only £3 - £10 to an adviser to arrange a £1,000 investment; just 22% said they'd pay more than £10. Scale it up and the figures aren’t much better for a £10,000 investment - 51% would pay £30 - £100; just 17% said they'd pay more than £100 as a fee.
Almost as many investors consult family and friends for advice as they do financial advisers. The media and various literature are popular sources of information before making investment decisions.
Tom Russell added:
“The FSA has said that advisers can ask clients if they want to deduct the fee from the investment rather than paying it up front. We expect most people to take this option or walk away. So, regulation which was originally designed to make investment advice more transparent will end meaning that fewer people have investment advice altogether.”
