Jeff Salway: Paying the price for skipping advice

'It makes sense to invest in expertise if you're not comfortable with doing tax returns youself' Picture: Sean Bell
'It makes sense to invest in expertise if you're not comfortable with doing tax returns youself' Picture: Sean Bell
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JANUARY’S a frantic and lucrative month for accountants as the growing army of Scots in the self-assessment system fork out for help with their tax returns.

It makes sense to invest in expertise if you’re not comfortable with doing it yourself, especially with the Revenue in trigger-happy mood when it comes to penalties.

Yet that logic rarely applies to wider financial matters, despite the potentially disastrous consequences of poor planning.

Just 14 per cent of us are willing to pay a fee for financial advice, according to new research.

The report, from Fidelity, raises fresh fears over the impact of reforms that came into force last month under the Retail Distribution Review (RDR). They include a ban on the payment of commission by investment providers to advisers for selling their products.

The first problem here is that advice is now paid for on a fee basis – and Fidelity’s research is just the latest to suggest that too few people are prepared to do that. The second is that most independent advisers and financial planners won’t do business with you unless you have a substantial amount of money and assets.

So the financial services industry has a big challenge on its hands: catering to the majority of people who can’t or won’t pay for independent advice. And that includes people with plenty of money to play with – those who wouldn’t pay a fee for advice have an average of £43,000 to invest, Fidelity claims.

The assumption was that banks would cash in once the RDR came into force by boosting their mass-market propositions. Those expectations have been confounded; instead they won’t advise customers with insufficient money, and when they do they’re levying some pretty hefty charges.

At Lloyds, for example, you’ll pay 2.5 per cent of the value of your assets up to your first £300,000, falling 
to 1.5 per cent on the amount advised on above that and below £1 million. If you go 
to Royal Bank of Scotland you’ll be charged an “implementation fee” of 
1.25 per cent on assets up to £500,000, dropping to 1 per cent on assets between that and £1m, and 0.75 per cent above that. Oh, and there’s a £500 “plan fee” too.

Not only are the costs too high, but the charging structures are complicated. Remember too that this is for restricted advice, so it won’t cover all areas of the market. Still think you’ll go to a bank for advice on how to invest your money?

And that’s before we even touch on the quality of that advice, which leaves an awful lot to be desired. Not sure about that? Check the numerous surveys on the subject, plus the ombudsman complaint figures and the proportion of those complaints found in the customer’s favour. The proportion of complaints upheld against IFAs is tiny in comparison.

But many who can afford independent advice are squeamish about paying, even as they spend money on accountants, solicitors and other fee-charging services. Whether they go to the banks or take the DIY option, they could be paying a far higher price in the long run.

Feeling the strain

THE human cost of the financial crisis, and of the government’s failing austerity policies, can seem an abstract consideration when compared with the numbers mapping out the downturn.

But the impact of the recession was illustrated in the bleakest terms last week. The number of people taking their own lives in 2011 was the highest since 2002, according to the Office for National Statistics. It reported an 8 per cent jump between 2010 and 2011, with the suicide rate among middle-aged men rising more rapidly than at any time in a quarter of a century.

The figures support research last year by Samaritans. It found that unemployment, deprivation and changes in demographics and the Labour market had created a “perfect storm” of challenges for middle-aged men, faced with a crisis of “masculine identity”.

There’s clearly more to the rise in suicides than the financial climate. But the impact of money problems and anxieties should not be underestimated. If you’re struggling with financial worries, seek free advice 
from a charity such as Citizens Advice Scotland or StepChange ( or 0800 138 1111). If you’re finding it difficult to cope and are in need of emotional support, call Samaritans on 08457 90 90 90 or visit your local branch.