Two weeks ago FCA chief executive Martin Wheatley appeared to send a clear signal that he is looking for digital propositions to fill the advice gap created by the RDR. So what will the advice landscape look like in, say, 2018?
To consider this issue fully you need to begin by defining the audience that Wheatley wants to have access to affordable advice. This is not just the now disenfranchised clients of IFAs but the entire population. Historically, IFAs have serviced at best 15 to 20 per cent of the population.
The following considers how IFA customers and the rest of the population might all be helped cost effectively in the future. In reality the vast majority of the tools to do this already exist elsewhere in the world.
Based on my extensive travels over the last 18 months, I believe the challenge is to identify which are the right services to import and what we can learn from elsewhere to build our own equivalent offerings.
One important section of the community rarely helped by advisers are those who will never have enough to save. For this group managing debt and surviving day to day are the best they can hope for. Such citizens deserve a much better deal than they get in many ways, I believe they should be the sole focus of the Money Advice Service.
It is clear that the MAS has become completely out of control over the last few years, consuming a vast budget with little perceivable benefit. It has built online tools to help consumers but, frankly, the quality of what is on offer is an embarrassment when compared with offerings that could have been sourced from the US for a fraction of the money the MAS is reported to have spent. The MAS needs to give up its aspiration to be an advice service for everyone and focus on those who most need free advice.
I am in no doubt that in the next couple of years we will see mass market advice tools emerge that can provide online guidance and advice to millions of consumers who have never had financial advice but who really want it.
I am currently monitoring dozens of businesses in the US which are offering consumers financial advice similar to the services of IFAs for a typical monthly costs around $25 a month or 0.15 per cent of assets. Around two thirds of these organisations have no desire whatsoever to operate outside the US, the other third, however, see international expansion as a key part of their strategy.
To be clear these services do not offer face-to-face advice but they are broadly comparable to independent advice. Countless surveys in the run up to the RDR suggested that consumers would only be prepared to pay a few hundred pounds for advice. That is an audience ready and willing to buy these services.
It is notable that increasingly in the US it is smaller advice businesses that are creating many of these new solution. I believe the opportunity exists for UK advisers to do the same. There now appears to be regulatory encouragement to do so and auto-enrolment is creating an ideal audience.
Few employers understand the impact of financial stress on their workforce,however, a growing body of research is demonstrating the loss of productivity this can cause. People with money troubles do not leave them at home when they go to work. Employer sponsored financial education and wellness offers a huge opportunity for adviser to build new income streams.
At the high net worth end of the market consumers appear to be segmenting. Those in the core retirement space are often “cash rich-time poor” and will continue to want personalised guidance, however, technology has a huge role to play in delivering the information such clients desire concisely and efficiently, whenever and wherever they want it.
Post retirement there is increasing evidence that investors are turning to online services to monitor their finances as never before. Over 55’s are twice as likely to manage their finances online as the population as a whole. In five years’ time I expect digital financial advice to be a significant and growing part of the advice market. It can complement existing advice businesses who embrace it and help them grow a much larger market share.
The FCA could greatly accelerate the growth of the services I outline above in two ways. Firstly by delivering greater clarity over where exactly the lines are drawn between non advised guidance and advice. We need documents with equal clarity to its excellent work on assessing suitability.
Second they need to make sure that the Financial Ombudsman Service accepts whatever definitions the FCA comes up with. These are probably the biggest barriers to delivering affordable advice to the mass market today. Given his statement to the Treasury select committee Martin Wheatley should treat the above as a priority if he wishes to see his prediction come true.
Like it or not the RDR is not going to be undone, so it is time to stop moaning about it and move on to build a better industry in the new world. To me there is a simple challenge to our industry; can we make the UK a savings nation again? I have no doubt the answer is “Yes, we can”.
The tools to deliver this change already exist. Who will be brave enough, who will be focused enough to make use of them?
Whoever does will probably find themselves as part of the dominant force in financial advice five to ten years from now.
Ian McKenna is director of the Finance & Technology Research Centre