A regulatory consultation into online advice tools could eventually lead to a new era dominated by “full advice planning tools” delivered directly to consumers online, the head of retail services at Moody’s Analytics has said.
In an interview with FTAdviser, Phil Mowbray predicted a major shift for advisers in the wake of a consultation to be launched by the Financial Conduct Authority, which he said would also move focus away from product-centric discussions of volatility onto decumulation and longevity.
He said that while it is important people understand product features and volatility when giving advice and guidance to those saving for a pension, for example, it is far more important for them to understand when they will run out of money.
Mr Mowbray said: “If you go to the US, probably the biggest retirement savings market in the world, they have got an industry standard advice tool for providing advice to retirement customers is to look at the chance that you run out of money.
“You give your retirement income needs, what is the chance that you will run out of money and that is fundamentally different to what we currently do in the UK.
“So I think a move to that kind of model that is focused on outcomes rather than product features and volatility is critical to making [the guidance guarantee] work.”
Yesterday, the Financial Conduct Authority announced that it it set to launch a consultation looking at automated advice processes. FCA head Martin Wheatley said there needs to be some solution from technology to meet mass market needs.
Mr Mowbray says the tools in the US are technology-based “full advice planning tools”, with an industry standard “when you will run out of money speedometer” at their core.
He says: “A lot of people in the UK would look at that and go ‘I don’t understand that’ but in the middle of it is a little speedometer thing which goes from zero to a 100 where you have no chance of achieving your retirement goals to you’ve got a 100 per cent chance of achieving your goals.
“There is no reason why it could not even potentially be D2C but it will almost certainly have to be online if, from an advice perspective, we want to scale this down on the spectrum a bit from the high net worth clients.”
Mr Mowbray also believes this can be used by consumers prior to getting full advice. In a scenario where a consumer receives a guidance pack, potentially under the new guidance guarantee, alongside the various options should be signposts to full advice.
He said: “Once they decide on the risk they are willing to take and want to understand more detail about one option they can get more information then on what the risks, including longevity, really mean.
“This is the bit about signposting to advice as if they don’t understand some points they can go see a financial adviser because they realise this is the biggest financial decision they will ever make.
“So if there is enough information and signposting there that those that require advice, which should be the significant majority, are going to go and take that.
“It’s about turning this notion of probability, as that is what this is about, into something digestible for an adviser and an individual retiree.”
