Almost half of life insurance customers do not want to pay for advice on their policy, a new report by Ernst & Young has revealed. Despite the large financial commitment involved and the potential for mis-selling, consumers expect free advice about the complex options available.
The research carried out by the financial services firm found that 45% of people looking for a life insurance policy do not want to pay for advice. This suggests that the financial advice industry in the UK remains an object of some suspicion with concerns about its true independence.
The Ernst & Young report, which surveyed 1,000 life and pensions customers in the UK, points to a dilemma for customers. They want to take control over the buying process, and don’t want to have to rely on someone ‘selling’ to them, and yet they feel they have to use an adviser because of the complexity of the purchase.
The news comes as changes to life insurance advice, the biggest for years, are due to come into effect at the end of this year.
As part of the Retail Distribution Review (RDR), customers will be offered a clear and concise charging system for any advice they receive. When the changes come into effect, on 31 December this year, advisors will have to explicitly disclose their fees to clients.
They will also have to separately charge clients for their services, rather than take a commission from a customer’s policy.
The Ernst & Young report found that 18% of life and pensions customers would prefer to pay for advice through charges deducted from their policy, rather than an upfront fee. Only 12% would prefer to pay for advice through an upfront or ongoing fee.
The publication of this information from a large financial services report just before the changes of the RDR are due to come into force is very interesting and probably tells us more about the industry than its consumers.
Reports such as this are bought and paid for like any other product and always show what the buyer wants them to. That a large financial services firm is trying to ‘prove’ that consumers are against the RDR is very interesting.
The industry has set against the RDR because it disadvantages companies that have been gently fleecing their customers for years. The customers themselves, however, are being empowered to get better advice for a lower price.
The simple fact is that many financial services products are too complicated for non-specialists to understand so most of us will require some advice. High quality, independent advice is worth paying for and the benefits will outweigh that upfront cost many times over.