There is a large section of the population who can't afford or don't feel they can afford, financial advice.
Since the Financial Advice Market Review (FAMR) Final Report was published in March 2016, the reforms by the Financial Conduct Authority (FCA) aimed at closing the “advice gap” have divided opinion.
The target of redefining the way that independent financial advice is accessed and delivered was a big call. Some commentators believe that the effects of the FCA’s interventions have achieved positive change, while others think that more needs to be done to create the ideal environment for the industry.
The FCA stated: “The Review has taken place against a backdrop of an increasing need for individuals to take more responsibility for their own financial future.”
It went on to cite various social and demographic changes, including an ageing population and changing employment patterns such as the “gig economy”, as the basis for the need to re-evaluate how the financial advice market operated.
Although a major impetus for the Review was the change in the UK’s pension investment regulations, the FCA stated that it was setting out a general “series of recommendations intended to tackle the barriers to consumers accessing advice.”
Two years later
The flagship reforms have had two years to show their effectiveness in closing the advice gap, and many specialists working in the sector have differing views on the outcomes.
The FCA believed that advice limited to one or more of a consumer’s specific needs rather than covering unrelated wider matters could be delivered at a lower cost, thereby making using services more attractive and inclusive. By increasing the number of people actually seeking financial advice, the gap could be closed and individuals could take greater control of their own long-term planning.
Some advisers are concerned that progress has been disappointing so far but believe that the FAMR will have a positive impact in the long term. However, more vocal critics think that streamlined advice and automated services are only two of the issues that still require clarification.
80% expected an increase in calls for more streamlined services
37% offered streamlined advice at the time of the research
62% cited regulatory risk as their main worry
22% were concerned about the time required to develop and market
10% thought that lack of consumer awareness would be a problem
Is it enough?
For some in the industry, the FCA’s reforms miss the point or simply do not go far enough. Progeny Wealth’s Managing Director Neil Moles raised the issue in an article for ftadviser.com when he said that a wholesale change in approach is needed whereby advice is decoupled from the product.
“I believe that separating the two will help achieve something that our industry hasn’t managed to achieve for a long time, and that is putting the customer first,” Moles said.
He added that “perhaps that is one way to help restore faith in our industry”.
Zero Support’s Consultant Phil Young said that pension freedoms in particular have made the advice gap worse and that this view is shared by other advisers.
“A few years ago, I would have agreed there was no such thing as an advice gap, but pension freedoms have opened up that up and FAMR has not done anything at all to make it easier and cheaper to get advice,” Young said.
“There’s little in the proposals that will attract people into giving or staying in financial advice because it’s not clear which way the FCA is even approaching the advice gap and, as a result, nothing has happened,” he declared.
The question “How much should I pay for financial advice?” is one of the main concerns of customers who are new to the sector, and there are concerns among professionals that increased demand for services will mean higher fees as supply stays the same.
Personal Finance Society Chief Executive Keith Richards is one of those who thinks that it will be difficult to keep fees down due to an increase in demand.
“Increased transparency as a result of RDR has been better received by the public than many predicted, and demand for professional advice has increased year-on-year since implementation,” Richards explained.
The FAMR recommendation that a dedicated team be put in place to help firms develop mass-market automated advice has led to the FCA establishing its Advice Unit. This also gives aid to businesses looking to work with discretionary investment management models.
Since the Advice Unit started, HM Treasury reports that it has helped support 22 firms that are looking to bring new propositions to market.
The FAMR has been the focus of change in the financial guidance markets for a while, but there will always be new red tape that firms have to deal with, as the recent introduction of GDPR legislation added levels of complexity to maintaining databases and communications.
Consultant Malcolm Kerr voiced the concerns of many of his peers: “The pressure on small IFA firms is significant.” He added that “the more you place on consumers, the more they will struggle”.
The state of play
Whether or not the advice gap has closed really depends on the perspective from which you are viewing things. If you are a customer looking for information on typical financial planner fees, then you might find things are more straightforward to navigate, but if you are a professional working in the sector, then many of the issues raised in this article might resonate in a very different way.
Access to financial planning might not be any easier if people don’t have the resources to pay for it, but the pressures for advisers to cater more to individual, case-by-case needs could be the change that has been the most important result of the recent upheavals.
At Lead Tech we make it easier for people to access financial advice. Our partners are passed a consistent volume of high-quality financial adviser leads from customers who trust our brands to get them the advice they’re looking for.