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Platforum: The dilemma at the heart of the advice gap

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Advice in the new world, following the latest governmental review announced earlier this month, will be “affordable”, “accessible” and “high quality”. However, this sounds like an impossible triangle, where you cannot achieve all three.

This is the conundrum at the heart of the advice gap and the departure of former FCA chief executive Martin Wheatley, in part, marks a lack of patience in the loosely defined expectation that technology will solve it.

What is apparent from our research is that many consumers rely on a blend of services for their financial affairs. Some are self-directed and some advised. Many choose both, while others are attracted to options that sit somewhere in the middle (although they call the help they are looking for “advice” regardless of its formal regulatory status).

In response to the review announcement, we have already seen disagreement around whether the regulation of advice needs to be less stringent for those with simple needs. Aviva has called for it, although Aegon has said it will be too tempting for cowboys.

Undoubtedly, simplified advice needs more work given the FCA’s guidance papers have not provided sufficient confidence to those developing automated advice propositions or to D2C players looking to be more proactive with their guidance.

Of course, the market has evolved substantially over recent years anyway, with plenty of innovation arriving in D2C. According to our latest research, the D2C market has picked up in 2015, with an annualised assets under administration growth rate of 19 per cent -although half of this is coming from Hargreaves Lansdown, whose market share continues to grow.

It is hard to point a finger at any one thing Hargreaves does that is driving its success but it has a number of initiatives that address the advice gap. Its fixed cost retirement planning service, for example, addresses the pension reforms and provides a specific dollop of advice people are looking for at an affordable price point.

On the guidance side, the Wealth 150 is the most recognised of the 12 D2C select lists that exist today, and Hargreaves gets substantial value from using it as the basis for its own branded multi-manager funds and ready-made portfolios.

Some of these guided options are priced at a premium level that would be more comparable to an advised service than a robo-advice solution.

The latest of those to soft launch is BrewinsDirect, Brewin Dolphin’s “new offering for clients who don’t require investment advice”. This will offer the Brewins Portfolio Service, which consists of six risk rated portfolios based on passive ETFs, with all-in costs to the investor at less than 0.9 per cent.

So while the target market is different to its premium discretionary clientele, it hopes the cachet of the brand will help to present this as a high-quality investment management service, which is accessible and affordable.

Another interesting shift we have seen this year is consumer preference swinging towards investing “direct from the provider”. For tomorrow’s investors who have capital but do not currently invest, the preference is banks. This supports the case for the likes of Barclays, which is combining retail banking with its platform and a newly launched select list that borrows expertise from the fund selectors looking after Barclays Private Bank.

Meanwhile, Aviva’s D2C investment account is now live and I think the concept works really well. If you are not an avid investor but have an insurance policy or workplace pension with them, as I happen to, then it is a no-brainer to use the MyAviva app, which pulls all your policies and documentation into one place.

If you buy into that, then adding a simple investment account makes a lot of sense and that is exactly what Aviva is offering. In one sense, it is a workplace savings platform because it encompasses the workplace pension but it is delivered outside the workplace with the consumer able to add in the Isa themselves, along with other Aviva policies if they so choose.

So do not be tricked into thinking this Financial Advice Market Review is about advice. It is probably more about the “market” part of that title: the market for services people want and are prepared to pay for. That market already looks much more vibrant, with both advised and guidance solutions popping up regularly, and that is before anyone has really got their teeth into delivering drawdown to the masses in way that is accessible, high-quality and affordable.

Jeremy Fawcett is head of direct at Platforum

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Couldn’t agree more with what you’re saying here, Jeremy. Big picture, it seems to me that first, over a very long period, we built a retail investment machinery that required advisers in order to operate it; then, second, we built some D2C machinery (eg Hargreaves) that required highly-engaged consumers to behave a lot like advisers in order to operate it; and now, in the third phase, we’re building new, easy-to-use D2C machinery (eg most of the names you mention) that ordinary consumers can operate without having to behave like advisers.

    I can see analogies here with all sorts of other industries where technology has enabled ordinary people to get perfectly good results without experts. Music recording comes to mind: when I played in a band a million years ago, we had to save up our precious dole money to pay for demo tape recording sessions run by ageing-hippy engineers in seedy Soho basement studios. Now, young bands can get infinitely much better results, a thousand times more easily and at no cost, from a piece of simple, accessible, free software.

    You could argue now, as you could then, that the very best producers and engineers, working in the very best studios, can still get better results than Microsoft’s Garage Band. But you’d be missing the point. 99.9% of young bands can’t afford Mark Ronson to produce their demos anyway. For them, Garage Band is a miracle.

    At the time, I don’t suppose the ageing hippies in the Soho basements realised quite how strongly the tide of history was flowing against them. They do now.

  2. Douglas Baillie 26th August 2015 at 2:41 pm

    The FCA rules, COBS and Miffid are far too complex, and advisers are now justifiably fearful of the FOS finding any excuse to find in favour of complainers.

  3. It’s all in the Code. Force the FCA to abide by that and so much could and would improve.

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