The issue of simplified advice has once again been pushed back by the FSA. This calls for a complete review of what simplified advice is so we can plan ways to deal with the serious problem that a big proportion of the population will have no access to professional financial advice.
Evidence shows very few advisers, if any, can deliver simplified advice profitably with-in the current regulatory parameters. This has little to do with the quality of advice or the nature of the service. In addition to the important profitability factor and the potential return on capital, the nature of the service being offered is dull, over-complicated and has no chance of engaging consumers or giving them the confidence to embark on any particular route.
The research carried out by Ernst & Young highlighted that the costs of delivering advice runs into hundreds of pounds per hour. We have seen the banks already accepting they cannot participate in this sector, as Barclays, in particular, and HSBC to a lesser extent have exited the market.
We have to accept that either we keep putting the subject off or that the method of engaging with consumers about financial planning has to change. The one part of the retail distribution review that has not changed from the outset is that fewer consumers will be able to access financial advice via the traditional routes. The number of advisers will fall in the short term and the costs of providing a simple service will outweigh the likely returns.
Consideration needs to be given to a fresh approach. This market should be perfect for the big consumer brands. Either they have been poorly advised or they too have realised that within the current regulatory structure the financials just do not add up.
This is not about reducing qualification requirements and fiddling with the existing advice structure, it is about giving strategic consideration to how we can empower more consumers to think about their financial plans.
More thought should be given to a national health-type service. Using the web more effectively to view and consider people’s situations should be a given. The need for consumers to complete separate fact-finds with every possible adviser is ridiculous and more should be done to consider such issues from a practical, consumer perspective.
Much is said about the need for consumer financial education but more fundamental is the understanding of consumer behaviours and being able to respond to them. Few people want to learn the intricacies of how a pension plan works but most worry about how they will survive when they get older.
Getting to grips with the real issues by starting with the practical needs of the consumer is essential. Heaping more regulation on to the sector, or even chipping at the edges of the current structures, is not going to deliver the results the UK so desperately needs.
Bold decisions are required. Otherwise, in 10 years’ time we will find an even bigger proportion of the general public facing an uncertain financial future.
Nick Cann is chief executive of the Institute of Financial Planning