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Advice Gap Broadens in the UK

It is difficult to understand how the UK Regulator managed to misinterpret the possible reaction to its implementation of Fees for Commission. A report in the Telegraph comments on a survey conducted by the fund manager, Schroders.

Nearly a fifth of advisers or IFAs – 5 400 of the estimated 30 000 operating in the UK – have admitted to “formally” asking clients to leave in the past year, research suggests. It follows a shake-up of the rules two years ago that forced advisers and advisory firms to charge clients rather than rely on earning commission from the investments they sell.

The survey shows that the cut-off point for running a sustainable business is investors with at least £50 000, while smaller IFAs needed clients with an average of £150 000.

Banks have also retreated from offering advice, increasing what has called an “advice gap”. Most of the High Street brands wound up their operations after the new rules on financial advice, which came with layers of new regulatory demands, were introduced two years ago.

IFAs have also cited this additional red-tape as a reason for rejecting smaller investment pots.

The Telegraph article points out that another potentially dangerous situation for IFAs is lurking when restrictions on retirement savings are lifted in the UK:

George Osborne, the Chancellor, has promised that the sweeping new freedoms, which allow savers to withdraw all of their company or personal pension from the age of 55, will be coupled with greater financial “guidance”.

Experts have warned that withdrawing money at the wrong time could result in needlessly large tax bills while ill-judged decisions on how income is taken from pension pots could mean the money dries up before the holder dies.

The Government’s promised guidance for those reaching retirement will be offered as face-to-face sessions with Citizens Advice or over the phone with the Pensions Advisory Service, an independent organisation.

Robin Stoakley, managing director of Schroders, said: “The timing of this is unfortunate given the changes in pensions’ legislation. The need for financial advice is greater than it has ever been.”

Local prophets of gloom will no doubt have a field day when they read this.

The RDR proposals, if implemented, will not see anything nearly as dramatic in South Africa. It is exactly because the Regulator saw the impact on advisor numbers, and the resultant negative impact on investors in the UK, that our restructuring process aims to prevent it from happening here.

If ever there was a time for objective thinking, this is it. Making assumptions on snippets of information from the RDR discussion document can shorten your life expectancy quite unnecessarily.

Please click here to read the full Telegraph article.

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