I recently spent two days at an FCA robo-advice seminar. This reinforced two things for me:
- The Government’s ambition to seriously reform the advice market through the Financial Advice Market Review and to make ‘buying an Isa as easy as buying a car’ (presumably with better standards of disclosure than Volkswagen), and
- The real revolution is already happening through enabling financial planners and firms with technology services, not through standalone direct-to-consumer brands searching for the “killer app”.
It was interesting to hear from US participants how slowly D2C robo-firms are getting traction and how their private equity backers are becoming frustrated at the pace of adoption. Even where established brands are launching robo offers, they are most successfully aimed at DIY customers, a market which is well served in the UK.
The biggest thing the Government can do to free up access to advice is to work with the regulator to clarify the suitability rules.
This is the single greatest barrier to the delivery of low-cost advice.
At the FCA seminar there was a lot of discussion around the number of questions you need to ask a client to ensure your advice is suitable and compliant. Figures in excess of 200 were quoted. Comprehensive advice is costly, time-consuming, complex and difficult to deliver. It is never going to be an answer for those who do not have a significant amount of money and time to invest in the process.
Many firms have shied away from offering focused advice, over concerns that if there were client circumstances which were not uncovered they could be liable for a complaint.
But how much more efficient would the process be if the regulator promoted and provided clear guidelines on focused processes? Firms could offer face-to-face and digital advice which solely dealt with specific needs, albeit with a sensible level of “gating” to ensure basic priorities were not missed.
This would be lower cost and less risky to deliver, and more accessible to the client than a 50-page financial plan.
Here are three things the Treasury and regulator could do:
- Provide examples of good practice around focused advice
The FCA should extend its guidance on retail investment advice to show how a personal recommendation can be focused. Examples of good practice around filtering and gating would also be helpful.
- Accept that suitability letters can be automated
Within limited scope, advice can be “good enough”. Advice on an Isa does not need to cover Aunt Violet’s potential legacy to be suitable. System-generated suitability letters can be robust as long as they link the recommendation to the customer’s needs.
- Support the use of technology in determining suitability
The regulator’s last paper on risk profiling tools was almost five years ago, and found 11 out of 13 risk profiling tools had flaws. The regulator should update this paper to encourage best practice.
Ben Goss is chief executive of Distribution Technology