Allianz Global Investors has added its voice to the growing number of those concerned that the UK regulator’s Retail Distribution Review reforms will fall foul of the law of unintended consequences and actually hurt the smaller investor.

Having surveyed the UK’s financial advisors, the firm found that 60 per cent believe they will not make a profit from smaller clients - those with less than £50,000 ($80,000) in liquid assets - at current service levels. As a result, 36 per cent plan to reduce service levels to smaller clients and 16 per cent said they will turn them away.

More heartwarmingly, 13 per cent of the UK’s advisors said they would continue to serve their smaller clients in the same way, even if they were doing this at a loss. A less altruistic 14 per cent have already altered their charging structures to keep their smaller client base intact, such as by increasing fee rates, either by a percentage of assets, a flat fee or charging an hourly rate for their time. A tenth, meanwhile, will turn to outsourcing to allow them to be able to keep smaller clients’ business.

The survey also predicts that clients are probably going to have to pay more post-RDR for the same level of financial advice they receive now. It was found that the majority of advisors (55 per cent) charge between 0.5 and 0.75 per cent of a portfolio, while of those who work on a standard hourly rate 86 per cent charge between £100 and £200. On this basis, a client with a portfolio value of £30,000 that is being managed at a 0.75 per cent fee rate is currently getting the equivalent of just over an hour’s worth of advice (£225) per annum according to average hourly service rates. Even a client with £50,000 in liquid assets would only get the equivalent of two hours of financial advice a year on the basis of the current percentage fees in hourly time, the firm said.

“The RDR code, established to provide resilient, effective and transparent retirement and investment planning for the retail investment market, has attracted significant attention since its formation, yet the potential fallout, both advisory and financially, for smaller clients has largely gone unnoticed. Furthermore, this survey has to lead to questions about the sustainability of some advisory companies in the future,” said Nick Smith, head of retail sales Europe (ex-Germany).

“Our research indicates investors with less than £50,000 in assets will have decreased service levels or worse still, be left with no professional advice. Therefore, we believe it is time for advisors and the providers to look towards a solution to this challenge.”