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Chris Davies: When is advice not advice?


We have an interesting conundrum when it comes to defining, regulating and access to financial advice.

The industry has been crying out for some time for advice solutions for the mass of consumers who either will not pay for or cannot afford to pay for fee-based advice by blending online technology with the financial planning process to increase access and potentially reduce the costs for fee-based planning.

This also applies to the high-net-worth market that now show signs of preferring a DIY online service as their primary interaction with their finances rather than face-to-face advice.

But we have an elephant in the room. Guidance rather than advice is the key phrase when it comes to online or simplified client engagement solutions.

With current innovation in the market, we are seeing some really exciting solutions such as apps that allow full consolidation of financial assets and cashflow calculators that forecast potential shortfalls in finances or ways to plan for key lifetime events.

Yet the fly in the ointment is the suitability test and the blurred lines that exist between the definition for guidance, non-advice and simplified advice and execution-only.

Between the FCA’s thematic reviews of adviser firm service suitability and its teasing message for the plausibility of online advice delivered with no human intervention, we seem to be getting conflicting messages which causes market confusion and can stifle innovation.

On one hand, we have a growing number of adviser firms offering non face-to-face services through social media such as Skype or call centres supported by QCF level 4 qualified staff and website-based portals that offer non-advised guidance or information where clients may ponder their options and self-select solutions. On the other hand, we have a shying away from a simplified model where a tick-box or a decision tree approach supported by online risk assessment tools can provide straightforward and transparent guidance for clients who wish to deal directly without too much fuss.

The Chancellor’s recent budget has also added to the debate in offering £20m for “free” guidance services to retirees who can now access 100 per cent of their pension funds at retirement. This will not touch the sides when it comes to the intricate counselling, planning and advice people will need at retirement but it is a kick in the right direction and just might start the regulatory ball rolling for finding a solution for simplified advice.

Terminology and definition of service is then key if the financial service industry is to rise to the challenge of addressing both mass-market and high-net-worth client needs. By focusing on guidance rather than advice, we can offer clients a steer or a nudge in the right direction which can then lead to advice further down the line as or if required.

There are a number of key steps that can then be taken that lay clear boundaries for financial guidance:

  • See things from a client perspective. By focusing on client needs and values, product providers and advisers can design and develop services that significantly enhance the client experience and thus provide high value.
  • Standardised process. A better alignment of interests between clients and suppliers of advice needs to happen.
  • Kitemarked products that consumers can trust and which the advice system can match to different types of clients. This can incorporate behavioural economic strategies for avoiding praying on client inertia and causing confusion. 

So if simplified guidance services are designed around nudging clients in the right direction while protecting them from poor judgement, then advice and suitability do not enter the equation. They become a natural outcome for the guidance process.

Chris Davies is director of Engage Partnership



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There is one comment at the moment, we would love to hear your opinion too.

  1. vaughan jenkins 13th May 2014 at 9:25 am

    The regulatory issues are multi-layered – not just the FCA but also FOS and MiFiD2 considerations, let alone the potential for case law to over-ride regulation.
    There is also a large body of evidence that consumers are very happy to search and refine their thinking online but in the age group with the bulk of wealth online purchase of investments is still a minority activity. The nudge over the line is still via face-to-face interaction in the main and this is still the preferred channel.
    This is not to say that new technologies supporting remote advice (or guidance) will not play an increasing part but consumer behaviours and attitudes will have to shift and providers of services will have to change too. Having spent 18 months plus on the design and development of for Royal London, in many focus groups and virtual research panels, it is clear that current offerings featuring pie-charts, simple line graphs and cash flow forecasts is only for hobbyists and advisers. And Moneyvista remains as the only holistic tool, trading off pensions, protection, legacy and borrowing etc.

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