- Pressure to comply with new regulations could lead to advisers shying away from providing advice
- Investors may find it harder to meet their savings aspirations if only offered lower risk products
- Concerns as investors increasingly shun professional financial advice as costs increase
A new report from KPMG highlights concerns that regulatory initiatives designed to protect consumers could drive some advisers to play it too safe with their clients by concentrating on lower risk products, and could also leave some without access to advice as prices increase.
Tom Brown, European head of investment management at KPMG, commented: “At at a time when the economy and government need people to be building retirement pots, many everyday investors are being steered towards lower risk investments or are shunning financial advice altogether. Whilst lower risk strategies will be appropriate for many clients, particularly those at, or near retirement, there will be clients who are at a stage of life when they could be taking more risk with some of their investments, to improve longer term rewards and meet their retirement aspirations. The long term policy impact on 2030 retirees, who are now in their 40s and should be building their long-term savings, could be significant.
“Our research found that many financial advisers fear being punished by the regulator for misselling riskier products. As a result they may be over-cautious and inadvertently provide the wrong advice to some investors. An appropriate and well-managed level of risk is essential to all long term investment strategies, as the typical investor wants the chance of a better rate of return on their investment portfolio than they could get from their regular savings account. If regulation steers financial advisers to offer lower risk products across the board, we may end up with a situation where investors must either save more or accept that they will be disappointed with their long-term returns.
“While there is undoubtedly merit in policy makers introducing greater transparency and accountability to the sector, there is a risk of unintended consequences for some. The broader impact on wider structural investment into the economy is also relevant.”
The report, UK wealth management at the tipping point?, also discusses how the rising cost of financial advice is encouraging younger investors in particular to shun professional advice and manage their own portfolios, which is not necessarily in their best interests.
Tom Brown continued: “Previous KPMG/YouGov research suggests that consumers don’t want to pay for financial advice, with £50 being the usual cap most people will pay. It is concerning that many everyday investors don’t use or see the value of financial advice, and on the whole are unwilling to pay for it. As the onus is increasingly left to the individual to make provisions for their long-term savings, it is alarming that people are likely to spend more on a plumber than on financial advice, which could set them up for retirement.”
The report also highlights the significant cost pressures facing the industry, with KPMG predicting that increasing costs could discourage new entrants and force some firms to exit the sector.
Tom Brown concluded: “Since 2008 - for the first time in 20 years - costs are rising faster than revenues and we predict that if revenues fall by another 15%, close to one third of wealth managers will be making a loss. As profitability is challenged, it is inevitable that businesses will be passing on the some additional costs to clients, which will unfortunately further discourage investors from getting financial advice.”
- Ends -
Notes to editor
KPMG’s report, UK wealth management at the tipping point? is based on qualitative and quantitative research undertaken in conjunction with Compeer. The findings are based on interviews with 41 CEOs across the UK wealth management industry and a survey of more than 300 ultra and high net worth clients.
The report is available on request.
For further information please contact
Monica Fiumara, Senior PR Manager, KPMG
Tel: +44 (0)20 7694 5674
Mobile: +44 (0)7901 105180
KPMG Press Office: 020 7694 8773
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with nearly 11,000 partners and staff. The UK firm recorded a turnover of £1.6 billion in the year ended September 2010. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 150 countries and have more than 138,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.