Are the advisory fees to blame for the increased advice gap?

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Illustration by Dan Murrell

We regularly hear comments about the UK’s ‘lack of guidance’ – what is causing it and how we can fix it. Recent research from the Royal London has estimated that around 39 million adults are affected.

There are so many theories as to why the advice is lacking. Recently, I had a thought about this which, without a doubt, will be seen as controversial and will be shot quickly, given that our audience is mostly financial advisers.

Here it is: the more I read and research, the more I begin to think that fees have a major role to play in the lack of advice.

Listen to me before you come to me!

I read documents relating to my father’s pension and consulted his local consulting firms with a view to finding him a new financial planner before he retired in a few years. One of the main things that kept surprising me about these files was the fees. Almost every page and everything in the terms and conditions comes with a fee. Three riddles with which company my father set up his retirement …

Imagine how many more people would seek financial advice if the fees were absorbed in a different way

When we talked about financial advisers, I informed him that of course there would be a fee to pay depending on how much of his pension he wanted to manage or advise. He told me about an advisor who had given him their approximate price list. What always strikes me, as with this advisor, is that the smaller the pot, the higher the percentage of fees for the tips. It’s no wonder that people generally don’t seek advice on jar.

Read more views from the Money Marketing team

Day to day life

While I absolutely should know more and preach about pension contributions to everyone I know, I don’t pay much into my own pension. Never had.

Honestly, given the pace at which the retirement age and cost of living continue to rise (besides paying for two kids to grow up and go to college if they want to, and then help them with general life events), I will work until I am in my grave. My “retirement” has therefore never been in the foreground of my mind.

I find the cost of getting advice very off-putting.

Having done this work for the past decade and reading as much as I do, I know the importance and value of getting financial advice. But the cost of it looks like a punishment – I have to pay a high price for a service just because I have a small pension and not a lot of assets to show.

Clear, easy-to-find information

To begin with, the fees should be transparent and easy to find on a company’s website. It can’t be that hard. I know one size doesn’t fit all, but the rough guides are a good place to start.

For example, consider the mortgage and protection markets. Since the Mortgage Market Review in 2014, the shape of the mortgage market has changed for residential properties. If you go to a mortgage broker (or even an insurance broker), you don’t expect to come away with a bill for their services.

While there is still a huge protection gap, the mortgage market seems to have the right idea. It might be harder to get a mortgage these days, but customers rightly have to prove they can afford to pay it.

The lender then pays the broker’s commission or proxy fees, and the buyer’s fees are not affected.

The smaller the pot, the higher the percentage of advisory fees. It’s no wonder that people generally don’t seek advice on potty jars.

A mortgage is, of course, a slightly different kettle of a retirement and investment plan, but the principles remain. Imagine how many more people would be inclined to seek financial advice or even advice if the fees were absorbed in a different way.

I’m not suggesting we reinstate commissions or cancel the retail distribution review, but maybe some form of common ground could help bridge the advice gap. Maybe the standardized fees could work. They would definitely be a start, even if they could drop like a lead balloon with many advisers.

But maybe companies should start by not penalizing young people, or those with smaller pockets, by charging a lot more than they do for the rich.

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