The advice gap in the UK is something that cannot continue to be ignored from a public interest perspective. Speaking at a Treasury Select Committee in early September, chief executive of the Financial Conduct Authority Martin Wheatley voiced his concern that individuals at the lower end of the spectrum are not getting the same service as those at the top due to the withdrawal of mass market advice post-Retail distribution review.
The industry has, of course, been raising this concern from as far back as the early 90’s. We have seen the advice gap in the UK continue to grow over the past 20 years and this is regrettably set to continue as further regulatory change continues to impact both the market and consumers in the wrong direction. It is therefore of even greater significance that Martin should make his views public and is a clear signal for the industry to respond constructively.
Clearly the exit of good advisers in the run up to the RDR has exacerbated the issue, although the fact that over 1,600 qualified advisers have re-entered the market since the start of the year is certainly more positive than predicted and has helped to temporarily mitigate the public impact. The fact that we have not seen the post-RDR fall-out of advisers struggling with adviser charging is testament to the quality of the individuals who remain and reflects the value existing clients place on advice.
Of course, some will pessimistically point out that further adviser fall-out should be expected; it’s just taking longer to materialise. While some further adviser loss for various reasons is likely, I do not share the view that it will be of significant scale, as long as certain aspects of unintended regulatory consequences are addressed. There were, of course, pessimistic predictions that adviser numbers would fall drastically with a widely forecast prediction of around 20,000 by the end of this year. However, with just over two months remaining and the current population standing at a more positive 32,500, this prediction has fortunately fallen wide of the mark.
The withdrawal of advice for the mass-market by the banking sector is where the biggest impact has been felt and this was clearly not originally anticipated when the RDR was first conceived. As intermediaries were expected to increase their focus on higher value clients, it was anticipated that the banks would help to bridge the social exclusion gap by building capacity through their branch networks. Bank adviser numbers have reduced by over half during the past 18 months, although a number will have moved to the intermediary sector.
Adviser feedback also suggests that few seem to have implemented radical segmentation strategies of their established client banks, limiting their services to clients with assets above a defined value, thus demonstrating that advisers in general do not put their own commercial considerations above the needs of their clients. And this is certainly a more positive consumer outcome than was otherwise feared – believing that advisers would dump clients wholesale.
It is widely accepted that this position is likely to evolve over time. Advisers are not turning their backs on existing clients with lower value assets to invest, despite the commercial impact, but consumers seeking advice for the first time is where some evidence of RDR impact has been more immediate and the consequences are therefore being more widely felt.
The increasing use of technology will naturally play its part in bridging access to products and services. But the need for professionally qualified advice has never been greater and it is in the public interest to seek a solution to the advice gap.
It is encouraging that both the regulator and Government have the long-term consequences of a growing savings and advice gap on their respective agendas. The RDR is a milestone opportunity to improve professional standards, increase trust and deliver better consumer outcomes – but without a thriving advice profession, the benefits are going to be limited to the affluent minority.
Keith Richards is chief executive of the Personal Finance Society