By Andrew Oxlade

PUBLISHED: 11:06 EST, 28 May 2012 | UPDATED: 11:06 EST, 28 May 2012

A new low-cost online service plans to take advantage of the overhaul of the financial advice industry by giving bite-sized consultations, starting at 35.

Moneyontoast.com is aiming to capture the millions of middle-income financial advice orphans that could be created under changes due to be made by the Financial Services Authority next January.

The regulator wants financial advisers to charge customers a fee rather than accept backdoor commissions, which can skew the recommendations they give.

But critics say a dangerous side-effect would be a financial advice gap.

Making bread: Moneyontoast gives our 'Toastie' tokens

Making bread: Moneyontoast gives our 'Toastie' tokens

Moneyontoast has been set up by CPN Investment Management, a Sussex-based wealth management firm established in 1986.  ‘There could be as many as 11 million people out there who won’t have access to affordable advice,' said Charlie Nicholls, managing partner.

‘It just won’t be cost effective for many middle income people. They’ll still want advice but they won’t want to pay 250 an hour for it.’

The cost for financial advice is currently between 75 and 200 an hour, according to Unbiased.co.uk, a national organisation that promotes advisers. But recent surveys suggest few would be happy to pay that.

A survey by CoreData Research suggested the typical price the average Briton would pay was 39 an hour – or 155 for a full review.

WHAT IF THE FIRM GOES BUST?

Investors, understandably, may feel a little nervous about entrusting their cash to new companies. 

What if the enterprise fails?

This shouldn't affect your investment.

Your money is ring-fenced. And, as in the case of Moneyontoast, it would not necessarily even need to transfer your funds to a new fund platform provider.

That's because Moneyontoast, like most other niche operators, invests your money in funds via one of the two fund platform giants - Cofunds or Fidelity's Fundsnetwork.

As Justin Modray of Candidmoney.com says: 'Funds within your ISA are ring-fenced by a 'custodian' (usually a third party bank) from both the fund manager and fund supermarket, meaning it's held separately from their businesses.'

But would could people expect for 35 at Moneyontoast?

The company claims many people will not need to pay, and that answering questions online in its ‘fact find’ process will give them the answers they need.

If they then still need to talk to someone then Moneyontoast says it has already gathered enough information to dispense advice quickly, within 20 minutes.

If it takes longer then the meter keeps running, with the client’s permission, so an hour session would cost 105.

This service is supported by Moneyontoast’s cheap investing options: a 7.95 flat fee for share trading and aggressive discounting on funds. Initial charges are reduced from a typical 5 per cent to zero, although this is now standard practice for most fund supermarkets.

Many of these discount fund sellers also reduce the typical annual fund charges - normally 1.5 per cent - by handing back some of the commission they receive. Hargreaves Lansdown, for instance, rebates a 'bonus' of 0.25 per cent a year on Isas - but not on Sipps.

Moneyontoast, however, has chosen to keep all of the commission.

Our verdict:

The notion of dishing out bite-sized amounts of guidance at a reasonable cost - a pay-for-what-you-use system - is compelling amid the threat of the FSA's changes that could 'orphan' millions of Britons from financial advice.

It's the sort of innovation that should be welcomed.

Moneyontoast's aim is not to attract savvy investors - those already picking their own shares or confidently buying funds through the likes of market leaders Fundsnetwork, Hargreaves Lansdown, or the cheaper option of Cavendish Online [find out more about the cheapest fund platforms].

No, Moneyontoast wants to connect with those who engage little about their finances - but should because of the reasonable amounts they have to invest.

Moneyontoast's decision-making tools - run by 'Doughbot' - are fairly basic. They include giving you a risk profile and a Financial Healthcheck and Pensions Check. But it's unclear how you use this information to make decisions, therefore channeling users into having to pay the 35 for advice.

Certainly, the process for picking funds developed by Rplan, another new entrant (see below), is smoother.

We're also disappointed that Moneyontoast will keep all of the annual commission it is paid on funds. We'd prefer it hand back some of this to investors, especially if those investors have already paid for advice. 

The company says costs can be reduced by earning 'Toasties', by referring a friend or by buying products, such as life insurance. Twenty 'Toasties' can be used to buy 35 of financial advice.

It may all sound a little gimmicky, but we welcome anything that helps those who have little interest or confidence when it comes to their finances to find the right answers. We'd just prefer that they went the whole hog and became DIY investors, making it as cheap as possible.

The new breed of investment help websites

Moneyontoast is not the only new entrant in the quick-and-easy advice market.

And it’s not just the FSA’s proposed changes driving this trend. Advisers have been squeezed by the boom in DIY investment. The investment industry was highly lucrative for advisers up until the last few years. But the advent of the internet meant millions educated themselves and now make their own money decisions.

COMMISSION PAYMENTS AND CHARGES EXPLAINED

The way investment funds are sold in the UK is nothing short of bizarre.

It's down to the way that financial advice is funded - something the regulator is determined to change.

If you go direct to a fund company to invest in one of their ISAs, you will be charged 5 per cent on ALL money you invest, as well as an annual management charge (AMC) which is a typical 1.5 per cent*.

You would also pay the same if you went to an independent financial adviser who takes a cut from each. These payments from fund companies to IFAs are for commission-based advisers to make a living - and offer a 'free' service to clients.

The third route is the cheapest way to invest. You go without advice and invest through a fund supermarket. The cheapest of these - Cavendish Online - will offer to refund to investors all of the 'advice' commission it receives (because it hasn't given any).

* In reality, the AMC is a nonsense and total expense ratios (TER) give a better indication of the cost to investors. It tends to be 1.6-1.7 per cent. But even the TER doesn't include all the costs that investors have to pick up.

There’s also a recognition in the industry that next year's overhaul – the Retail Distribution Review (RDR) – will highlight the extent to which backdoor commissions have been paid and spur investors to take even more control.

At present, IFAs represent the most expensive way to invest as they normally keep all the commission on offer - in exchange for advice.

But even the discount brokers and fund supermarkets that have empowered DIY investors in recent years still receive a huge income from commission often without giving individual advice.

Hargreaves Lansdown, for instance, is one of the biggest fund supermarkets in the UK and it makes an incredible 60 per cent profit margin from 208m of revenue a year, mostly from commission.

So with the industry under pressure, a handful of innovators have developed websites that could flourish.

Last month saw the launch of investsmartuk.co.uk, which puts 50 per cent of an investor’s trail commission back into their fund. It says that unlike most other commission rebate companies, it also provides a free annual review of fund performance, with a fee-based independent advice service available if necessary. 

Tom Russell, director at the company based in South Wales and set up by BeaconIFA, said: 'The rules on commission are changing at the end of the year, yet most investors are blissfully unaware. What many people don’t realise is that they can get half their commission back going forward as of today. The people hardest hit by the RDR will continue to be so called ‘orphan’ clients – investors that have no adviser. They are the ones paying the most and receiving the least, and we think it’s time that changed.'

Rplan.co.uk launched last year offering to hand back half of the commission it receives as a cash bonus. It also has financial planning tools aimed at helping people make their own choices about investing.

Its suggested portfolios also flag up the total expense ratios (TER) against each fund - a better measure than than the annual management charge (AMC) - which is nearly always '1.5 per cent' - advertised by fund managers. Rplan also puts a risk rating on each fund.