Addressing this problem will be challenging, but acknowledging that there are problems with consumer perceptions of the value of advice is an important first step. If the problem can be tackled and more consumers begin to see added value rather than simply cost when thinking about taking advice, the net outcome will be positive for the industry and consumers.
Moving on to issues relating to the supply of advice, the consultation document makes a welcome upfront acknowledgement of the reality of providing advice today.
In 2007, the paper explains, two-thirds of retail investment products were sold with the support of a professional financial adviser. Since then, however, adviser numbers have fallen and the market for face-to-face advice has tended to focus on decumulation and customers with more significant savings. As the consultation paper states, “it appears that a number of those firms offering advice are focusing more on wealthier customers rather than the mass market”.
The review goes on to identify a number of different factors prohibiting firms from making advice more widely available to the mass market.
Chief among these are the costs of providing regulated advice, which have increased significantly in recent years. Along with the increased cost of training and qualifications since the launch of the RDR, regulatory levies and the associated costs of regulation continue to be a challenge.
Pressure
This creates significant pressure on margins, dampening supply. Most obviously, it leaves limited capital with which to invest in growth, new staff, new offices and increased marketing activity. Likewise, much of the increased cost is passed on to the end customer who, as we know, sees cost as a major barrier inhibiting them from accessing advice.
Aside from the issue of cost, a number of other factors discourage the provision of advice to the mass market. The lack of a long-stop in the sector, for instance, is cited as an area for consideration. The review recognises this “may act as a disincentive to new firms entering the market”.
As well as pledging to explore consumer appetite for advice (demand) and issues affecting the availability of advice (supply), the consultation paper makes particular reference to “the impact of technology on how people engage with financial services”.
So-called ‘robo-advice’ has grown rapidly in recent years, in the US in particular. This catch-all term describes not just regulated advice delivered through an online system, but also the variety of apps and websites offering to help consumers understand their personal finances more easily.
Efficiencies
The review states that the government is “particularly keen to understand how the regulatory environment can be supportive of technology-based advice models that can meet consumer needs at low cost.” It is easy to see how a blend of digital and face-to-face advice might appeal to some consumers and could help to create efficiencies in the advice process.
