Advisers are shying away from recommending pension savers take sufficient risk to grow their retirement portfolios over fears they will be punished by regulators, KPMG has said.
The accountancy firm said regulation put in place to protect consumers was causing advisers to "play it too safe" with client money. It said many advisers fear being punished by the Financial Services Authority (FSA) for mis-selling riskier products.
KPMG European head of investment management Tom Brown explained: "At a time when the economy and government need people to be building retirement pots, many everyday investors are being steered towards lower risk investments or are shunning financial advice altogether.
"While lower risk strategies will be appropriate for many clients, particularly those at, or near retirement, there will be clients who are at a stage of life when they could be taking more risk with some of their investments, to improve longer term rewards and meet their retirement aspirations."
Brown said the long term impact on 2030 retirees - who are now in their 40s and should be building their savings - could be significant.
He said advisers who are overly-cautious could inadvertently provide the wrong advice to some investors.
"An appropriate and well-managed level of risk is essential to all long term investment strategies, as the typical investor wants the chance of a better rate of return on their investment portfolio than they could get from their regular savings account.
"If regulation steers financial advisers to offer lower risk products across the board, we may end up with a situation where investors must either save more or accept that they will be disappointed with their long-term returns."
The report, UK wealth management at the tipping point?, also discusses how the rising cost of financial advice is encouraging younger investors in particular to shun professional advice and manage their own portfolios, which is not necessarily in their best interests.
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