The Financial Advice Market Review asks whether Britain can bridge the advice gap for those people who “want to work hard, do the right thing and get on in life but do not have significant wealth”, strip out the political rhetoric and this comes down to..
examining the opportunities and challenges presented by new and emerging technologies to provide cost effective, efficient and user friendly advice services; and
encouraging a healthy demand side for financial advice, including addressing barriers which put consumers off seeking advice.
If advisers think this is a review about bringing down the cost to them of FSCS and of Regulation, then they don’t understand politics. It may be that the creation of “a sage harbour” in which advisors can operate without fear of litigation is part of the solution. But the big issue is that the Government is determined to democratise advice as it is democratising pension ownership.
I meet with IFAs and try to understand their business models. Most IFAs I meet are segmenting their client bank and choosing to do the majority of work for the wealthiest 20%. This is nothing new, I was taught to do this in the eighties by Hambro Life.
Whether you are charging fees or being rewarded by a percentage of the funds you manage for a client, there is value at the top and bad debts at the bottom.
The Treasury and the FCA see a proportion of the population that have the means to pay for some advice, but do not fall into the “wealthy” category. They worry that this part of the market is being ignored by Financial Advisers and they want to create conditions where people in this market are encouraged to pay and advisers encouraged to advise.
They’ve worked out that the key to the problem is technology. With technology, the question is not “how much does it cost” but “why do I have to pay”. The consumer’s starting point is that information is free and it is only the application of that information that has value enough to be priced.
The central question for IFAs is whether they want to advise in the middle part of the market, adopt the new technologies and become part of the Treasury and FCA’s solution.
I suspect that if IFAs don’t , they will find this part of the market being besieged by insurers who have the deep pockets needed. Looking at the strategy of Momentum (a South African insurer) using “MoneyHub” and LV (formerly Liverpool and Victoria) with “Clear Retirement Choices”.
The scale of investment made by these insurers in Financial Technology puts them on the front row of the grid. Sadly , most IFA propositions don’t have the funding to even get to the circuit.
It is possible (currently) for financial advisers to benefit from the spend of the insurers and smart advisers should be looking carefully at the opportunities they (currently) have to do so. This is my advice to employee benefit consultancies looking to develop their capacity as financial educators.
People are getting used to making decisions on line, to steal the brand of my friend Jerry, they need Financial Satellite Navigation to get them to where they want to be and they want to follow instructions to financial security as simply (and cheaply) as they would from their TOM TOM.
The Treasury and FCA look determined to make this happen. As with auto-enrolment, it is those parts of the market not served by effective advice that the Government are worried about. I don’t think they are wishing to cut advisors out but to give them the opportunity to make their living in a different way.
I suspect that the majority of advisers will continue to work with the wealthy, but I see the opportunities for new advisers- without access to wealthy clients – aligned to the Government’s agenda.
Anyone with an interest in the strategic development of the advisory market in this country, should be following very closely , the development of this Government initiative.
It won’t be about bringing down the cost of FSCS and regulation but it bloody well should be. Maybe in a few years time technology will be sufficiently available and usable and popular for the mass market to use for financial planning. But just because the technology exists and just because the need exists this does not mean people will actually use apps to purchase financial advice. The key is for people who make policy to realise that consumers only take action when they are inspired to do so. So good effective advisers are not just purveyors of facts and options, they sell! Selling is good, it makes the world go round. Bad selling is bad but good selling is excellent. Computer programmes and graphics do not inspire in the way a human being can be inspired by another human being. What’s the point in making whizzo computer programmes and software and mobile and tablet apps if people don’t then take action and make a purchase? You can produce all the videos you like about risk and pensions but a large majority of people only take action when the facts are made personal and relevant to them. And when the consequences of inaction are highlighted to them in time to do something about it. Human beings do that so much better than generalised videos which spew out facts. The difference between advice and guidance is massive. I personally do not operate in the mass market but it makes my blood boil that the ordinary man and woman in the street has lost access to affordable advice because of the theoretical musings of academics with zero understanding of how people do not make financial decisions based on KFDs and charts. By the time technology rides to the rescue and fails, people will be another ten years older and another several million people will be finding out that their auto enrolment pension does not provide the income they wanted. Not because it was a bad AE scheme but because the contributions were woefully inadequate. You are an actuarial professional and used to be an IFA so you are not a typical consumer Henry. The ordinary person is not as financially astute as you. They will not do something just because it makes sense to do so. So the advice gap will not be filled by technology alone, it will help reduce the gap but only a little bit. What a shame that real people cannot give financial advice to the mass market any more unless they want to do pro bono work. As I said at the start it should be about reducing the cost of the FSCS and the cost of regulation and the cost of the regulator itself. But it won’t be.
There is a way to offer financial advice to the mass market with a real human adviser and it wont be long before someone going to do it.