Friday 12 October 2012

A Nation of Financial DIY?

There's no 'free lunch' - well, not usually, that is. Whenever I am offered something, I always think: who's paying for this? Why am I being offered this? Is it likely to be to my benefit or someone else's?

This might seem like jaded and cynical thinking - but in the area of investing it is probably good practice.

And many investors are about to find out that what they thought was maybe free, wasn't.

Around seven million people use a financial adviser. At present these people generally pay nothing upfront for advice, leaving their adviser to make their money by collecting commission on the investments they sell. Not only is this an opaque form of remuneration but it also creates the potential for advisers to favour products with the biggest commission.

Under the new Retail Distribution Review rules being introduced in 2013, advisers will have to charge investors for the advice they give. So these investors are about to discover that the advice that they were receiving - at no obvious immediate cost to themselves - will now have to be paid for upfront.

This will be a pretty big disincentive. As reported by the Daily Mail, an AXA Wealth Study over half (54%) of investors who currently use an adviser would turn to DIY investing, except for more complex decisions, such as pensions - 13% would go it totally alone for all investments.

So, welcome to my world. Sort of.

But there is a danger for these new DIYers. As the Daily Mail article suggests, the funds industry, with their substantial collective advertising budget - is preparing to launch a campaign to lure them in - for example, with ISA funds.

OK, there won't be commissions - but there will still be substantial fund charges. And nobody will be telling them not to buy funds, after all, as there is no money in that!

So, it's down to us DIYers to spread the word.

I am not a financial advisor and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.

1 comment:

  1. What should have happened, is that the new auto-enrolled pensions should have had an option of 2/4/8% contribution (plus min 2% from employer) - just like it works in NZ. Then the old default course of action (go to an advisor) would have been replaced by the new default action (autoenrolled pension). But it is not to be.

    Funds management is almost as big a racket as financial advice. I expect the newish Vanguard ETFs to do well. Also, retail bonds.