By Tim Terrell
The gulf between those with and without access to regulated financial advice has grown, and looks set to grow more resulting in significant implications for the financial planning profession.
Research released by the FCA, Open Money and other bodies suggests that large numbers of people in the UK are lacking sufficient financial knowledge. Some do not know that financial advice exists, some do not know where to get it from, others cannot afford it and some still have the misconception that financial advisers will not act in their best interest and are driven by commission, formed in the years before the RDR which are still proving difficult to shift.
We also face the ongoing concern that it is expected that a large proportion of financial planners are exiting the profession through retirement and they are not being replaced at the rate that is going to make a significant enough impact on the attrition rate. This begs the question: if we successfully close the advice gap, are we going to have enough financial planners to service the anticipated client demand?
Surely the most logical way to tackle this growing problem would be through education. Informing people of the benefits of a financial planner via intelligent marketing, social media, schools / universities, workplace seminars and word of mouth can and do play a key role. This helps rebuild public trust and lack of confidence in taking financial advice. It is also important to raise the awareness of the role of a financial planner and demystifying the stereotypes by guiding new-joiners to the profession by showing that it is not high-pressure product sales, nor is it a role that is maths-heavy and only involves number crunching all day. Research by Octopus Investments shows that twice as many students interviewed said that they would consider working in the profession once it had been explained to them what a financial planner really does.
Academy programmes, graduates / apprenticeship schemes and employer partnerships with universities are growing exponentially and come in all shapes and sizes. They are doing their bit in developing the next generation of advisers and typically attract candidates that are university or school leavers, but in some cases are “career changers” that have extensive experience in a different field. These routes provide dedicated training and funding to complete the necessary exams in order to be authorised to advice and can sometimes offer the opportunity to work with an adviser in a support function and see them in action, gaining first-hand experience of the job being fulfilled – after all, professional advice is really not just about technical skills; people skills are regarded as being just as important.
These are some strategies that, if successful, will contribute to narrowing the advice gap. Whilst that is all well and good, it does not focus on how we increase the supply of financial advice. As touched on earlier, many believe it is too expensive or think that advice is just for the wealthy. Whilst the latter is believed to be a mistaken belief by most, you could also argue that the flood of increased regulation by the FCA over the past few years has caused many financial planning firms to change their propositions and their target clients. The new regulations, including MiFID II, the Senior Managers Regime and RDR have all lead to increased workload for advisers and business owners. The result? It is no longer commercially viable, nor profitable, for all advisers to service low-value clients. This is backed up by research from Octopus Investments that showed 60% of advisers turned away clients in the last 12 months (2019-2020). Whilst it is not clear what the underlying reasons for this are, one can assume that the increased regulations had a part to play. Until the regulatory burden is eased, it will be unfeasible for some advisers to help those with less assets. This also suggests that there is not necessarily a lack of supply, but instead indicates that the profession is not currently geared up to help everyone.
So, how do we change this? Again, there is not one solution for this, but another way to increase the supply of financial advice in the UK is to increase capacity by embracing technology. The introduction of Robo-Advice has offered to add value in this department. Put simply, Robo-Advisers are online portfolio management services or investment platforms that use a short survey to analyse your financial situation and make suggestions about where you should invest. They typically offer a more cost-effective route and are tailored towards people who cannot afford the fees attached to financial advice from a qualified professional. This provides another source of seeking advice, but most would argue that it is not a like-for-like replacement. Many digital providers only provide investment management advice, without real financial planning, which can offer a taste but simply cannot replace the service provided by a human. Modern day financial planning is also predominantly focussed on clients working towards lifestyle goals and the steps they need to take to reach them, and Robo-Advice frankly cannot offer this type of service. The general consensus that I hear in the market is that Robo-Advice is a valuable tool to get people investing and thinking about their financial future, and it can be harnessed as part of an advice firm’s proposition to attract more clients and build their assets to a point that they can validate paying additional fees for a skilled, dedicated adviser. Therefore, a hybrid approach can be adopted.
On that note, we cannot ignore that technology, used in the right way, can free up time for advisers, lower costs and enable financial planning firms to service more clients. We have seen everyone change the way they work in light of the COVID-19 pandemic, with most advisers and clients willing and able to conduct meetings using video platforms, like Zoom or Microsoft Teams. If they were not doing so already, a large quantity of advice firms have begun rethinking their business model, and changing their processes and systems to make their advice process more tech lead and paperless, which will ultimately make them more efficient. If increased technological capabilities meant that advisers did not have to do as much ‘paperwork’ and there were more collegiate systems in place, then it can be argued that advisers could service more clients and possibly increase the flexibility of their fees to reflect their quicker and potentially more cost-effective process, and to increase supply of lower-level clients. This is clearly not as simple as I am making it out to be, and a lot of investment would need to go into changing internal advice processes, and a “one size fits all” approach does not work for all clients, but I think it is difficult to oppose that technology can, and hopefully will, have a revolutionary effect on how advice is administered and processed.
To go back to the basics, I suspect that if the question were phrased "if good advice was free would you seek it?” then it would get an almost 100% yes. With that in mind, the profession needs to continue to take significant action to increase the supply and match the newfound demand. This needs to involve changing the perception of the role of an adviser to make it an attractive career option whilst investing in technology to increase adviser capacity and knowledge of the options available to people who do are not receiving advice. Finally, a more flexible approach to provide advice or ‘guidance’ is needed to allow advisers to be able to assist potential clients who may have lower assets and uncomplicated needs to invest without fear that they will come into conflict with the regulator.