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Nic Cicutti: Bridging the advice gap may do more harm than good

Nic Cicutti

am not sure whether to laugh or cry this week. My original intention was to discuss, not altogether kindly, the latest Money Advice Service circular emanating out of Holborn.

The MAS has wisely decided to stop spending outlandish amounts of dosh on TV adverts marketing its services to a generally uninterested public.

What it is doing instead is spending marginally less ridiculous sums sending out bland press releases to an equally uninterested media.

So, for example, the FCA’s research in January, looking at how consumers are making use of their pension freedoms, was seen as an opportunity to use the online MAS retirement options tool. Well, of course it is.

Last week, the MAS published figures showing how, yet again, millions of consumers are making a beeline to its door. According to the MAS: “79,000 of the 89,000 people who sought debt advice between October and December went on to take a positive action to better manage their debts.”

No wonder MAS chief executive Caroline Rookes is apparently “thrilled to see that over eight million of the people who came to us for help took a positive action to budget and live within their means.”

Eight million, eh? Soon there will not be any debt left in the UK to worry about, because the MAS will have solved it all. Perhaps we can continue to make use of adviser contributions so that this wonderful organisation can continue to expand and ply its trade in other highly indebted nations – Greece springs to mind.

Then, suddenly, I became bored with this grandiose and slightly surreal attempt on the MAS’s part to persuade a disbelieving public that its trajectory is reaching ever higher.

Far more important, from the point of view of genuine debate at least, was the main article in Money Marketing last week asking whether there is a genuine advice gap.

As the article’s authors – MM editor Natalie Holt and head of news Tom Selby – pointed out, the existence of this so-called gap has been massively spun in recent years to justify a relaxation of the rules on selling financial products to gullible punters.

The entire raison d’être of the Financial Advice Market Review has been to come up with proposals – reduced qualification requirements, ‘regulatory sandboxes’ and the like – to help bridge this supposed gap.

Now, suddenly, we are being told there is no gap after all and that, wait for it, “attempts to plug [it] are more concerned with providers being able to serve mass market investors, rather than helping a cause for the common good.”

This, increasingly, is the view of industry experts, who are questioning whether “those investors that are said to fall into the advice gap want or even need a full advice service in the first place”.

All of this is not before time. I have been asking this very question for years. Actually, let it be said, so have others.

Back in 2013, I recall Money Marketing quoting the FCA’s then director of supervision, Clive Adamson, as saying “it is not clear there is an advice gap”.

I argued at the time that, broadly speaking, Adamson was right. Advice as it is commonly understood relates to future events you either want to plan for, such as retirement and paying for your children’s education, or that are suddenly thrust upon you, like divorce or bereavement.

Most people faced with the need to respond to such life-changing events generally eventually find someone able to advise them, often more by luck than judgment. For them, therefore, the issue is not an ‘advice gap’ as such but the ‘right adviser gap’.

The real problem is advisers have never found a wholly convincing way of promoting themselves collectively to fill that gap.

As for banks and insurance companies, when they talk about advice gaps they mean something completely different. They seem to think the sale of a product, any product, is tantamount to plugging this gap.

The reality is, as I argued in 2013, “a poor-value badly-performing product does not plug the gap. It makes it worse, especially when people surrender products or leave them paid up after a year or two of contributions. Abysmally poor persistency levels across almost all financial products tell their own story.”

To understand this point one need only look at some of the ideas floating round the FAMR, like the safe harbour proposal where it will be acceptable to give inappropriate advice as long as the underlying product is deemed to be satisfactory.

For the industry, that sort of ‘advice’ potentially targeted at millions of people, means the gap is ‘closed’. For consumers themselves, it will simply leave them worse off than if no attempt had been made to bridge the gap after all.

Advisers, meanwhile, are being used to justify a watering down of consumer protection that will bring no benefit to them or any prospective clients they might hope to attract.

Still, who knows, maybe we should simply do away with advisers and pass on responsibility for bridging the so-called advice gap to the MAS.

With this organisation’s  brilliant record of statistical manipulation, the problem would be solved in a matter of weeks.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. Like previous comments made on previous articles I am finding myself agreeing with your comments Nic – this time about the MAS.

    You say “Then, suddenly, I became bored with this grandiose and slightly surreal attempt on the MAS’s part to persuade a disbelieving public that its trajectory is reaching ever higher.” –

    Yes, I was thinking Deluded Fantasy – You articulate it so well when you could have, like the rest of us, said “Then, suddenly, I could smell the Bulls**t” !!

    However, your closing comment may be “tongue in cheek” BUT MP’s, Civil Servants, FCA, etc. may think what a good idea – let’s get the MAS to save us all ??!!!

  2. Trevor Harrington 5th February 2016 at 1:44 pm

    afternoon Nic,

    The “advice gap” is simply those people of a lower financial status who used to be able to deal with Financial Advisers, and who now can no longer afford to do so, because of the costs that are involved.

    This perception of “afford” is partly to do with those Advisers who can longer afford to take those clients on as “loss leaders” to hopefully becoming larger clients in time, and partly to with the clients themselves who perceive the cost of Adviser services to be prohibitive.

    There are hundreds of thousands, if not millions, of such clients (or potential clients) out there.

    Of course, one can argue, as indeed you have done most eloquently in the past, that the service afforded to these lower value clients was not that great in the first place, especially those who unfortunately found themselves dealing with the Banks, or some other direct sales organisation.

    In the process of eliminating the small amount of cross subsidy which previously existed in fiancial services (as indeed is the case will all services), the Regulator has reduced the capacity of an Adviser being able to accommodate smaller clients in the hope that they might become big ones. Once again, an unintended consequence which the Regulator was warned about on many occasions, well before the dreamland of the RDR became a disastrous reality.

    The real issue is one of re-introduction of a remunerative proposition (commissions and fees are just irrelevant names), that is attractive to Advisers and small clients alike, whilst prohibiting the excesses of such payments in the past.

    Quite obviously a “Maximum Commission Agreement” in all but name.

  3. Oh Nic
    I’m thinking about starting a fan club!
    MAS, FAMR & The ‘Advice Gap’ chimera in one article. Veritably three birds with one stone.
    You have excelled yourself!
    I can only hope your ponderings may lead to some positive outcomes.

  4. Poor persistency levels, I suggest, are a direct consequence of lack of ongoing service ~ the old flog, forget and move on to the next new sale mentality, so typified by the banks, DSF’s and, dare I say it, rather too many IFA’s at the lower quality end of the market. So people who weren’t that strongly committed to the idea of regular saving in the first place and from whose minds had slipped the understanding that cathedrals aren’t built in a day would simply forget why they’d taken out the plan in the first place and let it lapse. But times have changed, Nic, in case you hadn’t noticed. Recurring revenue streams, ongoing service agreements, client retention and referrals to new clients are more important than ever and those things have changed the way in which advisers think and operate.

    But, for all that, the initial costs to an adviser of taking on a new client are indisputably higher than ever before an that may well be why too large a proportion of the general public is prepared or able to engage with an adviser. That’s not our fault.

    As for the MAS claiming that, in the wake of some sort of engagement it, tens of thousands of people have gone on to take a positive action to better manage their debts, such a claim is of little meaning unless there is in place a follow-up procedure to determine just how many of those people have actually stuck to that programme of positive action. If, as with a shoddily sold and unserviced pension plan, they jacked it in after six or nine months, then of what lasting value has it been?

  5. I meant to write too small (as opposed to large) a proportion of the general public ~ editor, could you correct please?

  6. Nic, there is no such thing as an ‘Advice Gap’. You know it (I strongly suspect), I know it, most other IFA know it.

  7. It appears we are all singong from the same hymn sheet as Nic.

  8. Is Nic herding IFA Katz in to a consensus? Of all people to get us all to agree eh Nic!

  9. Perhaps Nic has been taking too many or not enough Frog pills as for once he’s not bating us!

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