Free tools seek to fill advice gap as DIY investors rise
But the evidence still suggests that financial advisers are key to long-term financial planning
THE TREND towards DIY investment is accelerating. On top of the rising popularity of low cost execution-only investment platforms, some think that the Financial Conduct Authority’s retail distribution review (RDR), which came into effect at the beginning of 2013, has intensified the drop in the numbers of investors seeking professional financial advice. FCA figures show that the number of registered financial advisers fell from 38,317 at the beginning of 2012 to 32,000 at the end of July 2013.
While forcing advisers to charge transparent fees for their services – rather than recouping commission from product providers – is seen as vital for raising standards in the industry, research by Fidelity this year found that 55 per cent of those surveyed would be unlikely to pay for financial advice (see graph).
This worries many – including Karen Barrett of Unbiased.co.uk. A report by Unbiased and Standard Life found that the current average pension pot for consumers who have been advised on their retirement planning is £74,554 – double that of those not seeking advice. “Investors who are more open to taking professional advice will generally be more financially prepared in the long-term,” says Barrett.
Despite this evidence, many still choose not to use advisers – particularly for short-term investment decisions. So what other services are there to improve your investment choices?
DO-IT-YOURSELF
Due to RDR restrictions, execution-only investment platforms run by the likes of Fidelity and Hargreaves Lansdown aren’t allowed to provide specific, tailored advice. “But many offer a range of free resources on their websites, including investment commentary and research,” says Danny Cox of Hargreaves Lansdown. Portfolio modelling and investment helpdesks for can be useful for basic investment needs. But they will not provide direct guidance on the suitability of certain investments, or whether they fit into your long-term financial planning.
“There is a range of free material on offer to investors, including fund and stock comparison sites,” says Guy Knight of The Share Centre. Investment research organisations like Morningstar and Trustnet also provide fund and fund manager comparisons and ratings. This can help you better judge the quality of management in individual funds, and increase your chances of picking one of the 38 per cent of active managers that have beaten the FTSE All Shares index over the past 10 years.
Fund costs, however, have been criticised as opaque for retail investors. The True and Fair Calculator, set up by Gina and Alan Miller of SCM Private, is seeking to solve this. It provides a complete figure for the costs associated with individual funds. “We have tried to give a transparent treatment of fund costs, which can be very hard to compare sometimes,” says Miller. This transparency could have direct benefits for your portfolio, given SCM Private’s calculation that hidden dealing costs amount to £2.7bn each year among retail funds alone.
ACCESS TO ADVICE
Despite these resources, DIY investors face huge risks, and advice can be valuable when working out how your finances correspond with your life plans. “We still find enormous demand for professional advice on complex, long-term issues such as tax-efficient pension planning,” says Barrett. Unbiased provides searches of over 9,000 investment advisers in the UK and compares the costs and services offered. Barrett says that the service has seen a 10 per cent increase in searches in the wake of the RDR.
Those with over £150,000 to invest, meanwhile, can find and compare portfolio managers via Findawealthmanager.com. “Many simply lack the requisite time or skill to maximise the value of their investments on their own,” says Dominic Gamble, the company’s co-founder. “We have found that many who have had bad experiences with wealth management were simply matched up with the wrong managers to begin with,” he says.