Paul Lewis recently claimed the right to go on giving free advice to his readers and listeners. As a former journalist I entirely agree with his viewpoint. Just because a regulator has chosen to define certain types of advice as regulated does not mean other people do not have the right to give unregulated advice using the same term “advice”.
Advisers that think the FCA’s current stance on regulated advice is definitive are living in la-la land. But the real reason why some forms of advice will become free is not that smart journalists as well as dumb folk at the Money Advice Service are giving people what they would call advice. It is that the cost of delivering generic advice will approach zero.
This is the internet model. Once the costs of establishing an automated online system have been sunk, the marginal cost of delivering that service is zero, so the price will also rapidly approach zero. This is why I do not consider the development of simplified decision-tree online advice services an attractive proposition for established firms of advisers – though it may be worthwhile for a cubicle of bespectacled coders backed by some silicon roundabout optimists.
If you have bought books and music online you will understand how marginal cost rushes towards zero. The same is true of any online service. Look at the software companies that used to collect big licence fees from users. Now they get no upfront payment and much smaller revenue streams as user fees – and every new version of the system costs less because some upstart rival has come up with an even slicker and cheaper way of delivering something similar.
Established adviser firms are in no position to compete with technology start-ups when it comes to delivering relatively simple generic advice online. So they would be wise not to try.
Returning to the “advice” issue, it is important to note advice is regulated only when it comes to recommending products. Effectively, it is still products that are regulated but for historic and political reasons regulators chose to regulate the advice attached. It was, in my opinion, the wrong decision and has cost consumers a fortune but “free market” is one of those sacred cows nobody has the courage to slaughter. Never mind that the FCA’s new rules on product launches effectively put companies (and their bosses) under the cosh if they promote the “wrong” products to certain types of people. As the FCA sees it, this is not product regulation but process regulation. “Walks like a duck, quacks like a duck” is my response.
The development of online generic advice services will test the boundary of regulated advice. Already there are plenty of small websites that break the rules and if Hargreaves Lansdown thought it could get away with it it would follow suit. Eventually, however, there will be so many websites breaking the rules that the FCA will have to put up or shut up. In fact I expect it to fold. Can it do so without formally acknowledging that products are now regulated? Not, I think, in the English language you and I understand.
Chris Gilchrist is director of Fiveways Financial Planning, a contributing editor to Taxbriefs and edits the IRS Report