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Consumers set to reject paying fees for financial advice

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The introduction of the Retail Distribution Review (RDR) is likely to increase the UK's financial advice gap, according to the business advisers at Deloitte.

RDR comes into force from 31st December 2012, and changes the way consumers pay for financial advice.

Commission paid to financial advisers will be banned and replaced by adviser charging, where consumers pay advisers a fee for advice.

The survey of more than 2,000 people, conducted for Deloitte by YouGov, found that 84% of people are unaware of RDR or that consumers will face paying a fee for advice when RDR is implemented.

The poll highlights that more than half of all consumers will reject financial advice if charged a fee, however attitudes to paying for advice vary depending on the wealth of the consumer – with the likelihood of someone paying for advice going up the wealthier the customer.

Andrew Power, lead RDR partner at Deloitte, said: “The research indicates that many consumers, particularly in the mass market, are unwilling to pay such fees. As a result, the advice gap – the shortfall between the amount of advice required and that provided – is likely to increase as advisers leave the industry or focus on wealthier customers.

“These changes pose a huge challenge to banks, building societies, insurers and asset managers who will have to find new ways to distribute their products, and advisers who will have to persuade consumers of the benefits of paying for financial advice.”

Bank customers are five times as likely as IFAs’ customers to reject paying fees for advice.

Seb Cohen, head of insurance research at Deloitte, said: “Customers of banks and insurers are less likely to pay for advice than the customers of IFAs, and the lower the level of savings a consumer has the more likely they are to reject paying an advice fee.

“This is important because our research also highlighted the low level of savings among consumers. Nearly a third (29%) save nothing each month, nearly a fifth (17%) have no cash savings and almost half (45%) do not save into a pension.”

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