Advisers must follow the example of major online and high-street brands in order to stay relevant to customers and survive the next three decades. That was the key message from a panel of industry experts who gathered to celebrate Money Marketing’s 30th anniversary.
Speaking at the roundtable dinner at The Langham Hotel in London last week, many panellists raised concerns about the post-RDR advice gap.
Savings Champion chairman Chris Shaw said: “One of the problems is the IFA community is very under-capitalised. It is a very small fragmented series of individual companies. Where is the John Lewis of independent financial advice? We have power players like Towry and St James’s Place, but they’re not John Lewis. We have lacked vision and the ability to unify and bring things together from the consumer’s perspective.”
Unbiased chief executive Karen Barrett also drew on the high street for inspiration, calling on advisers to offer the same level of transparency over pricing. “If I walk into a dress shop and there are no price tags on anything I’m going to walk out again and assume I can’t afford it,” she said. “Perhaps I could actually afford something in that shop. Advice is no different.”
EY senior adviser Malcolm Kerr agreed advisers shy away from charging a suitable price for their service and being upfront about that cost.
“I don’t understand why the Government is suggesting our product is too expensive for our consumers. If the clients can’t afford it, that is not the responsibility of the industry. If you are running an airline and people can’t afford to fly, we are not trying to tell the airlines ‘why can’t you produce aeroplanes that can cater to people that haven’t got any money?’”
He added: “Are we in the business of delivering the right outcomes for our customers, our shareholders and our employees, or are we in the business of social services?”
But Money Marketing columnist Nic Cicutti did see a role for the state in helping the less well-off access advice.
“I’d like to see much more Government facilitation, for example, scrapping VAT on advice. I’d like some of that advice paid for by the Government: for it to set aside a decent amount of money for every single person, perhaps coming up to retirement, to get proper advice and not the kind of guidance we’ve seen in Pension Wise, which is a joke on so many different levels.”
It was argued even business models that are not quite so well regarded have lessons for the advice profession about behavioural economics.
Lansons chief executive Tony Langham said: “I’m supposed to say people want more information and education. But what I see with the success of the likes of Wonga is that people who have money in their bank accounts will still borrow from payday lenders at 3am.
“In the future, people will take serious financial decisions based on very little time and very little information unless the industry can find a way of dealing with this kind of person in a short space of time, 24 hours a day, when they want to transact.”
Momentum Financial Technology commercial director Stuart Meiklejohn echoed the need for round-the-clock, fast and simple solutions.
He said: “The busiest bank branch in the UK is the 7.01 train from Reading to London. People want to engage with apps and technology, advisers should come in at the right time when customers want them.”
Yet The Ideas Lab director Robert Reid argued poor labelling is a significant barrier to creating the kind of household names in the advice market that Shaw envisions.
“We should take a leaf out of the book of electrical retailers: if you tell people you can have it with an extended warranty or without they understand that. We have to get to the point where the terminology is similar to other consumer industries.Terms like “execution-only” are meaningless and shouldn’t be allowed. Advice needs to be like Ronseal: it does what it says on the tin.”
As well as market-driven changes, panellists also raised concerns about how regulation would shape the future of advice – whether that is too much, too little or simply the wrong kind of regulation.
Money Marketing’s founding editor Roger Anderson, who launched the title back in 1985, called for a much simpler system.
He said: “I’d actually like to see a lot more deregulation. When Money Marketing launched, the Life Insurance Association had quite a good idea, which was to go for licensing of individuals. The people who have caused all the problems in the industry are individuals and under that licensing scheme those guys would have been thrown out and never ever allowed back.”
But Hargreaves Lansdown head of research Mark Dampier drew attention to past failures of the regulator in arguing against the rulebook getting any bigger.
He said: “I certainly don’t want more regulation because it doesn’t work. That’s not to say I want total deregulation because that’s crazy too.”
Dampier expressed frustration over the spiralling cost of the Financial Services Compensation Scheme. “It just comes in a brown envelope and says ‘give us £5m in 30 days. What an extraordinary way of running things.
“It is a failure of regulation that I’m still having to compensate people all the time. Twenty-five years-plus after the Financial Services Act and we are still paying, so regulation hasn’t particularly worked. I’d make a plea for effective regulation.”
But other speakers warned the adviser industry to be careful what it wished for.
The Financial Inclusion Centre director Mick McAteer said: “It is an absolute myth that there’s overregulation in this sector, compared to the food sector, compared to the pharmaceutical industry, or industries of transport, air, chemical or nuclear. They are much more heavily regulated than you guys are, for the very simple reason that they are treated as very important public services.”
He added: “You keep on telling yourselves that you want to be treated as professionals, but with light touch regulation that just doesn’t compute. If you want to be at the level of solicitors, GPs and surgeons then you’ve got to be treated the same way.”
McAteer went on to lay down a challenge to the adviser community. He said: “If anybody can actually find me a regulation that imposes a duty of care or a conduct of business standard higher than would be expected if you were doing your job then I’d be happy to support you and call for deregulation.
“But I’ve been through the rulebook and I cannot find a single piece of legislation that expects more than you should be doing if you are running your business well.”
Lansons director Ralph Jackson had further advice for the sector when negotiating its future position with policymakers. He said: “You get the politicians and regulators you deserve and we can do something about that. That’s what happens when democracy prevails. Engage properly with these people and make them understand what you think is relevant, particularly around advice.”
Technology and Technical managing director Kim North said there is a simple solution that would make many of the current rules and directives redundant.
“I want more regulation on products because then we cannot have the misselling scandals that we’ve had previously,” she said.
SimplyBiz chairman Ken Davy added: “I would like to see us introduce a very simple system of costing products and I suggest the total expense ratio. If you use TER, just like you have APR in the lending world, it essentially counts for every element of cost within the product.That would cut through a whole load of regulation.”
But it is not just customers and regulators that financial companies have to satisfy. Langham pointed to another issue that has prevented the financial services industry from putting its house in order. He said: “One reason is the return on equity demanded by shareholders. When I’ve worked with credit card companies and asset managers, the requirement for salary plus the return on equity required have meant it’s been very hard to put the customer first.”
He also warned the poor reputation of the financial services sector following recent scandals has far-reaching consequences.
“People leave university and want to go and work in industries they think are well regarded, but all the surveys we do show the financial sector is really slipping down the list of what people want to do. If you look at pride in the industry that you work in, it is in the bottom three out of 30 industries we measure.”
Fomer pensions minister Steve Webb said the advice sector needs to continue to move on from the perception among consumers that advisers and the wider financial services industry are not to be trusted.
He said: “People’s lives now are so much more complicated and diverse that we all need a lot more help and advice. You may not end up married to the same person all your life compared with a generation or two ago, and you may not remain with the same employer. Many more people with have a defined contribution pension than a defined benefit pension.
“If ever there was a massive need for help, guidance and advice it is the world we have moved into. The potential for advisers to make a real contribution is greater than ever. There is a huge opportunity here.”