For those of us who have worked in financial services long enough, the emergence of the advice gap has been years in the making and, it has to be said, was foreseen.
There are 32 million working people in the UK. Those are people who would benefit from financial advice, to help them get on the property ladder, protect themselves and their families and of course build up an adequate retirement pot. But there are only around 23,000 advisers to service this growing market.
Of particular concern to the Financial Conduct Authority (FCA) and HM Treasury are those people who fall into the advice gap. They will almost certainly need advice but may not know where to get it or be prepared to pay for it.
The recently launched Treasury consultation to amend the definition of financial advice is an attempt to encourage advisers to provide guidance. Up to now they have declined to do so, fearful that their guidance could be interpreted as regulated advice.
Guidance may come at a lower cost than full financial advice, so it could appeal to the part of the market most at risk of falling into the advice gap. This would be a good outcome if it could be achieved.
It is worth reminding ourselves how we got here, if we are to navigate a way out of this conundrum successfully.
RDR means that consumers must now pay for advice. That is alien to most people who have ever had an adviser. Around three-quarters of the population have not used an adviser in the last two years and cost is the number one reason, according to research by True Potential.
Yet despite the emergence of direct-to-consumer channels in recent years, we have yet to reach the tipping point in financial services where consumers are prepared to go it alone in large numbers. People are comfortable buying shoes, handbags, the weekly shop, TVs and almost anything else online, so why is it that they are still unwilling to buy a pension or an Isa in the same way?
We are not a nation of savers and becoming one will require advice, or perhaps guidance. We have found from True Potential polling that savers are prepared invest up to £1,000 via a computer but beyond this they wish to speak to a human, but then the cost barrier kicks in.
I believe that this attempt to clarify where guidance ends and advice begins is partly about addressing advisers’ concerns that they may fall foul of current regulation, with its blurred lines. Risk aversion in the adviser market is understandably widespread, no doubt fuelled by the former head of the FCA’s ‘shoot first, ask questions later’ mantra.
