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Ian McKenna: Who will crack the tech advice conundrum?

The FCA has challanged firms to provide advice to the mass market and the technology already exists to do so. Which firms will be first to bridge the advice gap?


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



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There are 10 comments at the moment, we would love to hear your opinion too.

  1. “To be clear these services do not offer face-to-face advice but they are broadly comparable to independent advice”

    Sorry but have to disagree. No way is face-to-face advice broadly comparable. There is nothing wrong with the sort of “on-line” service that you are proposing and I agree it would suit the vast majority – who don’t have complex needs and are not prepared to pay the amounts that Advisers require.

    The FSA made its big mistake when it tried to turn sales people into advisers. “Advisers” are often daft enough to think that they advise rather than sell and now they are “qualified” to level 4 they will be even more dangerous and expensive.

    The solution for the vast majority will be to buy on line and not to pay for “advice”. The sooner the FCA realize that they have made face-to-face Independent advice far too costly for 95% of the population and get on with encouraging inexpensive on-line solutions the better BUT this will have nothing to do with those few advisers who remain. Those advisers will need to become really well qualified and carve out a market with those who have complex needs and are prepared to pay

  2. I have to agree with Bones completely. That was the sentence that leaped out at me. It is in line with the wishful thinking that emanates from the FCA and before that from the FSA viz. We must force people to pay for advice to make sure it is independent but we won’t accept that lots of people can’t / won’t pay for advice, and we also won’t take responsibility for the fact that this large group will make mistakes operating without advice.
    Endlessly, the call comes up that the solution is a matter of using technology. It won’t work. No one will be foolish enough to put forward an automated solution that gives ‘advice’ because they then have to take responsibility for the advice given which must be impartial and whole of market and appropriate to the precise circumstances of the individual.
    The US is not a comparable market as the test for advice suitability is not as high and those using automated tools are not expected to be given the same level of service as those who are paying more for face to face advice sessions.
    We have to accept that, like legal and medical advice, those who can afford it get it, the rest just have to make do without the same level – a fact that the regulator seems to find impossible to face.
    Technology is a tool – never a solution in itself – and as such it is primarily beneficial to automating large repetitive tasks. The level of individuality required for financial advice is way beyond current capabilities and therefore we just have to start to accept reality – charging for advice means that fewer people will get it.

  3. Hector Sants told the TSC ON RECORD and it is still on HM website that Simplified Advice would be an essential part of the RDR and he implied one could not work without the other. He got a Knighthood for that, so as the FSA never DID sort out the simplified advice regime before RDR came in, can someone take away his Knighthood please?
    Just as many of us were telling the FDA 4 years ago there were solutions to the Longstop connumdrum which shoyld have been acceptable to the consumers associaion, so some of us were trying to show them ways (on a small scale) that once you had met KYC requirements, a simple service could be delivered to consumers which would give them what they needed, whilst protecting the advisers backside from costly battles over advice . But OH no, they no better and wanted to talk to the banks, not even the bank advisers, the same senior management who cocked up the whole financial system, but ignored those they considered simple children saying Oh LOOK the Emperor has NO clothes.
    We’ve recorded client meetings for nearly 6 years. We had one complaint a year in and it was rejected once we pointed it out to the client’s solicitor. The systems exist, but the will doesn’t at present as it doesn’t work with consumer bodies, nor with the electrorate’s desire to always find blame with someone else and not themselves.

  4. Great piece and I think it is beyond much dispute that there is a huge opportunity for someone to effectively move into the mass market space by utilising technology. However I think it goes even further than that. We have seen an appetite from what some would refer to as HNW to consume financial advice in non-traditional / digital ways now – and this doesn’t just mean emailing them a valuation instead of putting it in the post! This is only going to increase.

    Concerns over regulatory issues and looking very much internally – as most advisers tend to do – somewhat misses the point. How people want to consume services (of which financial advice is very much one) is changing – or has changed.

    If you look at the accountancy industry (our core business), this is only heading one way – the cloud. The more traditional firms are losing small business clients by the dozen due to the SME demand for cloud-based tech driven services. So some advisers will resist this but the change is going to be driven by demand anyway.

  5. I don’t expect FCA to attempt to specify the definition of advice vs non-advice vs guided sales as they want to avoid being “gamed” by the industry.

    FCA should instead encourage the development of guided sales/non-advice propositions through more open communication. The industry needs to build confidence that FCA will not penalise genuine attempts to grow the post-RDR market.

    The industry could utilise the technology behind propositions by inviting FCA feedback on the principles behind the model rather than on specific outcomes.

  6. Ian has laid down an interesting challenge – how do advisers design a technology based advice process?

    I have been trying to do this for many years – I write my own code and calculators but still struggle to design anything that really helps with decision making.

    Then I heard David Davies on Desert Island Discs a few years ago and he said “Every decision has an analytical part and an emotional part. Get the analytical part and it makes the emotional part easier”

    It then all fell into place. Most clients are not able or prepared to do the analytical part before their emotions take over.

    Even if clients were prepared to do the analytical part online they still need help with the emotional part.

    Personally I think annuity and drawdown decisions will be one of the last bastions for personal contact in financial services.

    This does not have to be face to face because telephone will do, but I don’t think this can be done online.

  7. SA – Test comment (chrome) local workstation

  8. SA – Test comment (Chrome):

    A spokesman from Leeds Building Society says: “We are constantly reviewing our mortgage range to ensure that it is appropriate for the market.”
    I guess this depends on how you define “the market.” If the word market is defined in the normal way, i.e. potential consumers of a product or service, this criteria amendment does the exact opposite of ensuring the mortgage range is appropriate for the market as it reduces consumer choice, despite there being no reduction in the availability of suitable advice.

    Therefore I assume either Leeds is getting too high a proportion of its business from mortgages where the borrower’s age at maturity is over 75, because of the small number of players in the sector of the market, or the word “market” is a euphemism for concerns about regulation.

    With this criteria change Leeds has merely come into line with most other lenders by removing one of its USPs but this move is further evidence of a conflict between what the MMR says, i.e. that lending into retirement, however one defines that these days, is acceptable, providing affordability can be adequately demonstrated, and what criteria the vast majority of mainstream lenders are actually currently applying to this sector of the market.

    Fortunately innovative products like the new Hodge Retirement Mortgage are helping to fill the gap left by mainstream lenders in meeting the affordable needs of older borrowers but it is notable that whilst pressing ahead with a second scheme to help the important First Time Buyer sector, and others only able to put down a small deposit, on the basis there is market failure in the 95% LTV market sector, The Chancellor appears not to have noticed there is even greater market failure in the market for older borrowers.

    It appears to have also escaped his notice that the “market failure” as far as high LTV lending is concerned is primarily due to the Basle 3 rules, which he supported. Does that mean that to address the “market failure” resulting from Basle 3 The Chancellor would now support changes in Basle 3 to make its capital requirements for high LTV lending less restrictive?

  9. One thing I should emphasise is that this is a reform of the whole of financial regulation. I say that because it is easy to conclude from observation of the issues we face as regulators, and the public debate, that we are just dealing with reforming the regulation of banks. That is not the case, and what we are doing is not about dragging the rest of the financial services industry into reform to solve a problem that is in essence only about the banks. We have to design a system that works effectively for all sectors of the industry.

  10. IH test comment

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