There has been a myth for many years that it was possible to obtain “free financial advice. This was obviously not true. Advisers were being remunerated by commissions which reduced the amount of money you invested in the product.

January 2013 sees the reality of the long awaited Retail Distribution Review. As a result of this review carried out by the Regulator, the Financial Services with effect from 1 January investors will have to pay for advice by means of a fee. If necessary this can be taken from a product you purchase but it will directly reduce the amount you save. So, for example if you wish to invest £10,000 into an ISA and you need to pay £300 for the advice, only £9,700 will be invested.

From the point of view of clarity the change is good but it will have unforeseen consequences. Surveys suggest that many investors will be unwilling to pay for advice so they will take no action. Of you feel like this and you are reading this article, I want you to ask yourself two questions.

Would you pay a health professional to assist you with a healthier diet which would prolong your life, or an exercise regime which would achieve the same objective? And

Would you pay a solicitor to draw up a will so that your affairs can be properly looked after when you die?

The answer is that you most probably will answer “yes” to both these questions. The reason you may answer yes is that you are concerned about your long term future, you want it to be as planned and as secure as possible. So, if this is how you feel then surely it makes sense to pay some money to an adviser who can help you plan your long term financial future.

I suspect the reason that investors are not prepared to pay for financial advice is that they do not understand what “real” financial advice entails. It is not about being sold a product, it is about working with someone to plan your long term financial factor.

In my next few articles in 2013 I will be exploring what it means to an investor to obtain good financial advice, what you should expect and how much it should cost you.

January 2013