The ending of commission for financial advisers from January, following the retail distribution review (RDR), is prompting continuing concern that anyone not prepared to pay fees will be unable to get financial advice.
Research by Deloitte this month claimed 50,000 people in Scotland may be left without advice, as costs become transparent and both banks and IFAs focus on the affluent.
The research showed 87% of bank clients believed the advice process was free, and most would be unwilling to pay a one-off fee of £300 or more to an adviser. One-third of all those using banks or advisers said they would stop doing so if charged directly.
"The introduction of RDR will have a significant effect on the service that the public receive," says Robert Hair, head of financial planning at Turcan Connell in Edinburgh. "Although the changes are well-meant, the public won't take kindly to what they perceive as a new cost."
Three-quarters of advisers charge clients a percentage of their assets, 49% a fixed fee and 39% hourly rates, according to Opinium research. One in three believed the change would increase confidence in IFAs.
The Financial Services Authority this week said 86% of advisers were now qualified up to level four, the standard required to offer fully independent advice under the new regime, while only 5% of IFAs said they were planning to leave the industry. Almost 40% said they would continue servicing clients with less than £20,000.
But the race is now on to offer alternatives to full-blown advice at full cost. Glasgow-based IFA Save & Invest has just launched a software-driven service, which it hopes will be taken up by other advisers around the country. Jeffrey Deans, managing director, says the key is "to use technology better – if you give people the mechanism to provide you with data, you have just saved yourself an hour of investor's time".
He adds: "We are working on how to deliver different services to different types of client, because there are clients who want to keep the cost down but who would never dream of making a decision without eye-balling somebody."
The service offers IFAs a complete client management system with research, fund and portfolio monitoring, and investment platform, at a cost of 0.25% of the client's assets.
Mr Deans says: "The only people who lose out are the fund managers and supermarkets and that doesn't matter to the client. The client wants low costs and for IFAs to survive. Big institutions have had too much of the cake in the past."
The industry is calling for the FSA to allow level three IFAs to sell regulator-approved basic protection, investment and annuity products on a commission basis.
Meanwhile DIY investing is set to grow. The Deloitte research found 32% of savers saying they would rather go it alone as a result of the RDR, while research from Legal & General Investments found 41% of investors happy to continue investing directly and a further 7% intending to start.
Garry Mcluckie, head of platform at Alliance Trust Savings, warns buying funds on platforms will continue to expose the private investor to hidden commissions. He says: "On a fund of £50,000, how many customers understand that their provider has been receiving up to £375 annually from the retention of a 0.75% rebate?"
Although transparent adviser charging applies from the end of 2012, platforms who hang on to these rebates can continue to do so until the end of 2013. ATS is among the minority of platforms that return the rebate to the investor.
Potentially more serious pitfalls await DIY investors, says Duncan Glassey, a Scottish fee-based financial planner. He says: "Too many fund managers and advisers are hiding behind the disclosed annual management charge and not educating clients about a potentially far greater cost impact of active management: portfolio turnover."
He cites analysis by information group Lipper, which suggests that when a fund turns over all its investments every year (a 100% turnover) it adds 1% to the investor's annual cost. "Investment returns are not high enough to absorb these excessive costs," Mr Glassey says, pointing to one Edinburgh wealth management firm's prospectus showing a total expense ratio or TER (declared cost) on its funds of 1.93%, but a portfolio turnover of 112%, pushing up costs to 3%. Mr Glassey says: "Compare this with the passively managed/institutional portfolios that I manage which have a TER of 0.45% and virtually no turnover costs."
Another user of passively managed funds at wholesale prices is Alan Dick, principal at Forty-Two Wealth Management in Glasgow. He says: "Too many firms have been focusing on getting qualifications up to level four and think that will make them RDR-ready. The real issue is 'what service do you provide and why should I pay for it?'"
Retail tracker funds also need to be examined. Fidelity Worldwide Investment has launched compareyourtracker.co.uk to help savers compare popular trackers. It says its MoneyBuilder UK Index fund could save £60 over five years for every £1000 invested, compared with a high street bank tracker, assuming a 5% a year return.