A central RDR aim is for indiv-iduals seeking financial advice, products and services from the retail investment market to engage in an improved market with the consumer at its heart. Plans are under way to develop practices to work clearly in the best interests of customers and encourage an enduring, positive relationship with a thriving industry.
One of the key success measures for the RDR is to ensure more people have access to financial services. At the outset of the RDR in 2006, Clive Briault suggested there was “a huge gap between the type and volume of advice available, and that which is needed”. He said he believed it is “vital that consumers have access to financial advice, products and services that both meet their needs and are suitable and affordable.”
Consumers currently face two key barriers to access:
Lack of choice
The current regulatory regime offers just two choices – full advice or non-advised, execution-only services.
The FSA’s June 2007 RDR discussion paper notes: “…the costs of regulatory require-ments, and the ways in which many firms apply these require-ments, limit the number of firms willing to serve certain types of consumer.”
We believe a new channel is needed for consumers who do not require full advice but want something beyond information via money guidance or non-advised, execution-only services.
Cost of advice
The full advice model is attractive to some consumers but the availability and cost of advice acts as a barrier to many others.
The discussion paper comments: “Many consumers who have the means to save are simply unable to afford advice rela-ting to their financial situation.”
The industry is developing proposals for a new distribution channel for people whose needs are not currently met.
“Guided sales” aims to offer access to a range of good value, straightforward products and affordable financial advice. It could be used by a variety of consumers to meet their financial needs, including savings and investments, protecting their families, at retirement or simply seeking advice on existing policies.
There are two possible models for guided sales – advised, and non-advised. Advised guided sales is a process-driven service which identifies a range of consumer needs and recommends suitable products from a limited range.
Non-advised guided sales is an information service linked to an execution-only facility that allows a consumer to purchase a product they feel is suitable.
The information provides a statement of facts and figures and/or an explanation of product features. Non-advised services cannot provide a recommendation on a course of action or interpret a consumer’s personal position.
Both services could be delivered by insurance companies, banks or financial advisers, either face to face, via the phone or through the internet.
Any guided sales model would include safeguards to ensure good consumer outcomes. In addition to ensuring advisers follow the pre-determined process, built-in safety mechanisms will need to be incorporated within the model.
For example, consumers with some forms of debt would not be advised to purchase an investment product. This could be achieved through a pre-filtering process and the inclusion of questions designed to remove any consumer with debt issues from the advice process.
Care would be needed to ensure consumers with outstanding liabilities do not get poor advice but an advised guided sales service could help with debt issues by recommending counselling services.
There is consumer demand. Findings from ABI/BBA consumer research testing prototypes of a new distribution channel called assisted purchase found the model would have a positive impact on saving behaviour, including among people who are less financially active.
Consumer impressions of the process were positive, with most finding it accessible and easy to understand. Most trusted the process, believing it can help them to identify and meet their financial needs.
ABI data analysis estimates the new channel could help to deliver investment products to 14 million people, annuities to 10 million and protection policies to 11 million.
To develop a new channel that supports good consumer outcomes, the industry needs regulatory support. Before firms commit to build services, they need certainty from regulators on how they would treat a new category of distribution.
The FSA must recognise guided sales services in its general guidance. Firms need clarity on the definition of guided sales, so there are clear boundaries between advised and non-advised services. For example, a non-advised guided service can provide general, non-specific information, “people like you” scenarios and guidance to help consumers assess their attitude to risk.
We also need the Financial Ombudsman Service to provide certainty about how it would expect to treat firms.
The UK has a well documented protection and savings gap. The ABI’s State of the Nation’s Savings survey shows a serious problem of under-saving. Around half of the working population (nearly 13 million people) are saving nothing or far too little in a pension to provide for a comfortable retirement.
There is a clear need to encourage means by which more people can access financial services. We believe guided sales will help more people take control of and improve their financial situation but there is still much to discuss.
In the immediate future, we look forward to a lively debate at an ABI Conference panel session entitled, Can Guided Sales Work for Consumers?
For more information and to book your place at the conference, visit www.abi.org.uk/abiconferencejune09.