FCA chief executive Martin Wheatley’s appearance before the Treasury select committee last week created something of a stir in financial advice circles.
As reported in Money Marketing, when he was asked by TSC chairman Andrew Tyrie; “do you believe that financial advice can be delivered online without human intervention”, to the surprise of those present, and many who have read the press reports since, he replied “yes”.
To say Wheatley hit the nail on the head is something of an understatement. It is not just that it is possible to deliver advice in this way; it is also the case that there is going to be no alternative to meeting the challenges of mass-market advice over the next decade.
Let’s first take a look at some of the stark statistics reported in Money Marketing over the last 12 months. According to The Platforum there are now 14 million consumers in the UK with a risk based savings product. According to a number of other reputable forecasts this number will increase to nearer 18 million by 2018 with the addition of auto-enrolled pensions.
Now let’s take a few moments to think about what The Platforum means by a ‘risk based’ savings product.
Surely by definition this means that someone, preferably in consultation with the client, needs to make some sort of trade off between risk and reward and decide how much investment risk is appropriate for that individual to achieve their objectives. Unless, that is, we want to go back to the dark ages when this sort of decision was made for millions of clients as a whole by the statutory actuaries of with-profits funds.
Meanwhile MM reports the number of bank and building society advisers now stands at 3,500, down from 8.500 at the end of 2011; and the total number of advisers now stands at 21,800.
Even if we take an optimistic view that each of these adviser can serve 200 clients each per year, this covers a little over 4 million advice interactions per year at most. If we then generously assume that the market for self-directed investors is 4 million, this still leaves a vast un-served market of several million clients.
Whilst we in the UK are blaming the RDR for this so called ‘advice gap’ other countries have woken up to the potential of online solutions to serve the needs of mass-market consumers. As Ian McKenna has been saying in MM pages for at least the last 3 years, online advice is happening in other parts of the world … and it is coming, via the internet, to a community near you.
Perhaps most surprisingly these so called algorithm based solutions, which use logic and the crunching of big data to put clients into low costs portfolios which match their risk appetite and their personal preferences, are in danger of making some face-to-face judgment being applied in the clients home look outdated and expensive.
No-one is arguing that a complex estate planning problem, or a finely balanced drawdown case, can be solved using a set of advice algorithms. Not yet anyway.
But to argue that a simple Isa portfolio, or defined contribution pension portfolio, cannot be advised by a computer, is to forget that insurance brokers and travel agents have been largely replaced by online solutions, and that the professionals that have survived in those industries have had to transform their businesses to adapt to the reality of consumers who have access to all and more of the information they used to rely on to ply their trade.
On first read this article may appear to be something of a threat to face-to-face advisers. Nothing could be further from the truth.
The challenge is not to face-to-face advice, which must surely thrive in an environment of under-supply and over-demand. The challenge is to the financial advice industry to wake-up and develop solutions for millions of potentially unserved clients.
Andrew Firth is chief executive of Wealth Wizards Limited, which owns online IFA www.wakeupyourwealth.com