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“Most people wouldn’t dream of repairing their own car or fixing their own plumbing and would instead opt for a trained professional. Shouldn’t the same apply when it comes to taking financial advice about some of the most important decisions in a person’s life?”
Thanks to the internet, the obstacles faced by do-it-yourself investors have fallen considerably in recent years.
Add to this the recent news that those approaching retirement will be offered free financial guidance by the government from April 2015, and it’s not surprising that more and more people are asking whether there’s any point forking out for an IFA at all?
Why pay for something we can either do ourselves or will get — at least in a ‘lite’ format — for free eventually anyway?
If the latest figures from the Financial Conduct Authority are anything to go by, the IFA coffin is well on track to being hermetically sealed. In the space of just two years, the number of advisers has plummeted from 41,000 to 32,690, and whilst the decline in IFA numbers has been less dramatic recently, there has been a steady reduction over time.
To put this into context, official industry figures reveal there are seven times more car mechanics in the UK than financial advisers – at 218,590 – six times more housebuilders, at 187,400, and nearly four times more plumbers, at 107,000.
Gaining in confidence
Due to the wealth of investment information, guides, tools and tips available online for free, DIY investors are getting more confident at managing their own funds and pensions, and are becoming increasingly reluctant to pay someone to give them a hand – especially as there’s little difference between tax wrappers any more.
They’re also increasingly of the mind that fund selection is the only thing that really matters and, as a growing number of advisers simply outsource their investment solution anyway, are going straight to the people running the money.
IFAs, in short, are being cut out of the picture. Reflecting this, a recent report from MGM Advantage found that more than a third of adults aged 55+ say they would not value financial advice when retiring. They simply don’t think that going to a professional is worth the money.
But for many people, forgoing paid-for advice can often prove a false economy as their lost profits far outweigh the cost of IFA fees.
Faced with a bewildering choice of products, those with limited experience often opt for the cheapest fund, the most recognisable name, the latest ‘big thing’, or lock into an appalling annuity product, and it can cost them dearly.
Going it alone?
I’ll admit that paying for investment advice is not for everyone. Many people will continue to manage their own portfolios and do very well.
Their view is often that the adviser knows as little as they do about the future performance of funds and, given that fund choice is the most crucial thing of all, they may as well go it alone.
But others will continue to seek advice because they’re broadly in agreement with what Hugh Mullen, former UK managing director at Fidelity Worldwide Investment, said back in 2013:
“Most people wouldn’t dream of repairing their own car or fixing their own plumbing and would instead opt for a trained professional. Shouldn’t the same apply when it comes to taking financial advice about some of the most important decisions in a person’s life?”
IFAs and many others, including myself, fall into the latter camp. But I suspect that younger people, confident in their ability to research and invest online, will increasingly be inclined to go it alone.