In a matter of hours, the Financial Advice Market Review (FAMR) consultation will close and – after munching roast turkey and mince pies – the Treasury and FCA will begin the process of pouring through consultation responses. But will this exercise actually achieve anything useful when it comes to tackling the UK’s worrying ‘advice gap’?
We published our own Advice Gap Report last week following a debate that brought together some of the industry’s brightest thinkers. From sitting in on that discussion, I walked away feeling upbeat about the outlook for the financial advice market, but at the same time recognised there is much work to be done.
There is no quick fix to closing the advice gap, the speakers said. We are almost three years on from the introduction of the Retail Distribution Review (RDR) and the industry seems a long way off bringing financial advice to the masses. Indeed International Longevity Centre research published on Friday suggested that of those who had taken out a financial product in the last two years, just over 1 in 10 (11.2%) had been influenced by an Independent Financial Adviser. Perhaps more worryingly, 2.7 million people took out a financial product in this time period without collecting any information at all.
What then is the solution for closing the ‘gap’?
Stephanie Condra of AXA Investment Managers says that to address what she terms the EGA (education, guidance, advice) spectrum it is going to take more than just a regulatory solution. “It’s going to take new players, and those players might not be from within the industry.”
For John Cowan, Executive Chairman of Sesame Bankhall Group, the RDR has been successful in driving up standards, but it has “quite accidentally, disenfranchised a whole number of people from advisers.” He added: “Pre RDR, IFA businesses had cross subsidies meaning they could look after better off clients, as well as lower value clients. Once the RDR came in, firms began to think about their business models and realised that they couldn’t really service lower value clients.”
Perhaps one of the biggest buzz words of 2015 has been that of ‘robo advice’. In reality, it’s a nonsense term – robots are far from being a capable of delivering the quality financial advice that countless professionals provide to their clients each and every day.
But the thinking behind robo advice – namely making better use of technology – is a valid one. Kirsty Worgan of Bravura Solutions, told our discussion that it will be very important “not just in closing the gap but also for the future of financial services.” And she worries that if the gap isn’t closed then “the door is going to be opened for others to attempt to provide the wrong information and take people down routes that they don’t want to go.”
For Anthony Morrow, the Founder and Chief Executive of eVestor, a new online advice business due to launch in 2016, advisers are at a crossroads in terms of how they use technology to win over a new generation of investors. “You can’t see some young people going to a posh office to see an adviser when they’re probably used to doing things with an app,” he said. “From the adviser’s point of view, the question is how they bridge that market. This is not an immediate issue for advisers, but will be when they want to sell their business in five or ten years time.”
Will the Financial Advice Market Review actually achieve anything? David Ferguson, Founder and Chief Executive of Nucleus said it comes down to how success is defined: “ If success is the whole country saving in a really efficient manner then there’s no possibility of the review succeeding. But if it crystallises some grey areas where people have put forward Holy Grail solutions then I think that would be a partial success. I think as a society we have to confront the reality that this is a really hard problem. It’s not specifically about financial advice – it’s a much broader issue.”
New advice businesses – such as eVestor – and the transformation of existing ones will help widen the provision of financial advice. But the Treasury and FCA also have their part to play in creating an environment free of red tape, allowing the industry to innovate and come up with more appealing solutions for investors. Perhaps then 2016, might (just) be the year when people become a little bit more financially savvy which is a victory of sorts.
Mark Gee, Associate Director, MRM