Is there an advice gap? If so, is it widening as a result of the RDR? Or has it always been there? And what can be done about it?
I spent some time pondering these questions during an eight-hour journey home from Bridlington on Sunday, while trying to ignore the pitying stares of car occupants zooming past my ageing Lambretta in the gusting wind.
Riding at 55mph means that as long as you maintain your lane position and keep an eye out for changes in traffic ahead, you enter into a Zen-like trance state, still alert to immediate danger yet with plenty of time to think.
Which gave me the chance to mull over a quick chat in Brid with a friend who has recently divorced her husband after almost 25 years of being together.
He runs a successful business focusing on plumbing, heating and ventilation systems for small enterprises and housing projects. My friend was involved in the business from day one, working as an unpaid receptionist, handling all the paperwork and being a named director until childcare duties took her away about 12 years ago.
In recent weeks, she has agreed a financial settlement with her ex. Broadly, the deal involves the house for her and the kids, but staying in joint names until it is sold when they finally leave home; plus a regular income and a substantial chunk of money upfront paid to her.
The latter is a down-payment towards an agreed share in the business, to be finalised when it too is sold off a decade or two down the line, along with freehold property it operates in. This last, she feels, will be her “pension”. But the high five-figure cash lump sum also needs a home.
My friend has been looking for an adviser: the family’s former IFA was, she feels, more closely aligned to her ex-husband and his business interests, so she would prefer someone she can trust herself.
Her solicitor pointed her in the direction of a firm and, from what I can make out, its advice at the time of divorce in terms of protection for her and the kids in the event of her husband passing away was competent. Yet the long-term chemistry isn’t good, hence the continuing quest.
She will eventually find someone, although it may take time and the search will not necessarily be very thorough.
As I wound my way slowly and carefully across the M18 and down the M1, it occurred to me that every year there are many tens of thousands of similar stories involving divorce, bereavement, businesses being sold, pensions maturing, critical illness and life insurance payments made.
When these life events occur, the people they happen to don’t suddenly become paralysed by indecision. They actively want an adviser and will eventually find someone, generally by luck more than judgment.
The issue, therefore, is not so much that there is an advice gap. In situations where people identify a need that needs to be met, they will generally stumble across someone to help plug it. For that reasonably large group of people there is no advice gap as such.
Whether the person they find is the right one for them is another matter. The IFA community has for years been unable to differentiate its collective service offering sufficiently well to act as a beacon for casual would-be customers.
Part of the reason for this has been the failure to create an industry-wide promotional structure – perhaps a massively beefed-up IFA Promotion? – in place of the previous regulatory one, which at least had the merit of creating clear water between independent and tied advice.
If so, for those actively seeking financial advice today the issue remains the age-old one of finding the right adviser. In that sense, I find myself agreeing with director of supervision Clive Adamson, who was reported in Money Marketing as saying “it is not clear there is an advice gap”.
The picture changes where people are not yet aware they need help. In other words, where the gap is not one of advice but the one identified by ABI research more than a decade ago: a more general one of lack of long-term savings and/or protection needs being unmet.
Once upon a time, arguably, some of that savings and protection gap could be reduced by persistent commission-based door-knocking by a small army of salespeople, many of them IFAs.
The problem there, which the ABI never seemed to understand, was that selling 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.
In that sense, what we now call an advice gap, with banks in particular pulling out of the market, is a fruition of underlying symptoms that have bedeviled the industry for well two decades a more.
Rather than moan about advice gaps, the industry would be better off improving the quality and marketing skills of existing advisers, and – crucially – of products themselves. All the RDR has done is shine a harsh spotlight on shortcomings that should have been resolved a long time ago.