There are concerns that the Financial Services Authority’s RDR will further reduce access for the majority of the population to a financial adviser when advice becomes wholly fee based at the end of 2012.
Very soon the price of advice will be explicit, which will make it even more important that advisers and planners can clearly and simply explain the value of advice in plain English.
David Norman of TCF Investment said, “We have come up with a simple example that shows that advice could be worth ten times someone’s starting salary, but we are aware that advisers will have lots of ideas and examples that are at least as good.
“It seems to us that pooling and sharing these ideas would be very simple to organise and of great benefit to the whole advice / planning community and the wider population. Trade bodies may even take some of these ideas and turn them into customer campaigns or advertising.”
TCF Investment has asked that IFAs email their ideas to a dedicated address: [email protected].
TCF Investment will then collate these ideas and send a full list of every contribution back to each IFA that sends in one or more of their own ideas.
The TCF Investment example:
TCF Investment noted that there are over 17 million people in the UK who have collectively saved £158 billion into Cash ISAs (source: HMRC), now earning very low levels of interest. Many of these investors will be trying to protect against inflation with inappropriate asset class mixes – cash will be eroded by inflation over the long run.
So, for example, if someone without advice on National Average Earnings of £25,500 saved 3% of their salary a year for 40 years in a tax inefficient way with low returning assets (2% pa net, with salary inflation at 2.5% pa) the final value might be £74,444 – and provide an income in retirement of £4,615 a year.
If, after good advice, they saved the same amount but with 20% tax efficiency on their savings and into an asset mix that delivered real returns of 3.5% pa year, the final value would be £220,120 – which (with an improved annuity rate) could provide an income in retirement of £18,050 a year. That is nearly four times as much.
In this example, the value of advice could be a whopping £268,686, ie – an extra income of £13,434 for 20 years or ten times the starting salary of the saver.
David Norman continued, “Perhaps we need a new bright blue sticker that reads, Valuable advice provided here?”
