The number of financial advisers in the UK is woefully low, a relatively tiny number of individuals who, admittedly, serve a mostly affluent client base pretty well and are responsible for huge amounts of investment, but supply nothing like the numbers needed to serve the majority of the UK population.
Regulatory influence will bring about little change. It is the regulator’s primary role, after all, to regulate existing advisers, not expand the number we already have. In the longer term, politicians may see the wisdom in expanding adviser numbers, but at present, while there are many laudable initiatives to expand adviser numbers, the simple fact is that affordable financial advice has never been so out of reach of the average person, in my experience.
The banks have all but retreated from giving independent advice, having had their fingers burned, and many consumers report simply having no idea where to start when it comes to looking for advice. The government itself struggles to understand the issues.
David Cameron, and other politicians, have hailed the Pension Wise initiative as offering advice when, of course, it offers nothing of the sort. Information yes, guidance of some sort at a push, but properly regulated comprehensive financial advice? Sadly not.
Pension Wise and the Citizens Advice Bureau, which now offer government-backed pensions help, would also be the first to confirm that they do not offer regulated advice and are not intending to do so. So what is to be done?
I believe that first there must be a realisation that millions will never be able to afford comprehensive financial advice under the current system because, due mainly to regulatory requirements, it is simply far too expensive to provide for the majority of the population. A comprehensive financial plan and full factfind can easily cost £2,500 or more.
On top of this, highly qualified advisers or financial planners will require ongoing fees of £100 to £200 an hour or an annual investment management fee of 1 per cent or more of portfolio value. This is well beyond the average person.
I have always been a defender of good quality financial planning or financial advice because I believe it has great value and most would benefit from it, but it is clear that this model will never serve the majority.
For all its faults, I believe that the Pension Wise service and similar initiatives could show the way forward, but the government should go further.
Why not offer tax relief on financial advice to make it more affordable, or, for every Isa opened, why not give people a voucher for £250-worth of free investment advice from a professional to get them started? I accept this is simplistic, but it would at least get people started in understanding the benefits of advice.
The government happily offers tax relief on childcare and a myriad other services deemed desirable, so why not do so for financial advice? £1,000 of advice would go a long way. It would benefit millions and encourage more to turn to an adviser.
Bringing down the cost of advice has to be a priority, but while this is helpful, even I cannot see this bridging the entire gap, and for many, technology could be an answer. It is interesting that the FCA’s chief executive Martin Wheatley has voiced his interest in the so-called ‘robo-adviser’ idea – an automatic online service to begin with, but then access to human advice when needed. And why not?
The UK population is increasingly tech-savvy. Millions are now quite comfortable using online calculators, comparing home and car insurance, using video services such as Facetime or Skype and engaging with online banking, savings and fund supermarkets. Why not marry all this together for a more affordable financial advice solution, accessible to millions?
Some are already trying to do just this, such as financial planners Keith Churchouse with his SaidSo proposition and Chris Williams with his Wealth Horizon venture. These are beginning to combine human advice with ‘robo-advice.’ It is an approach that has worked well in the US and could work well here.
We need to move away from the idea that all clients require a Rolls-Royce service. They do not. Many are happy with a Ford that gets them from A to B. Ad hoc advice when it is needed may be just what some people need.
Allowing consumers easier access to ad hoc advice or cheaper online advice is no bad thing and could spur more demand for comprehensive human advice when needed as more people understand the value of a financial adviser.
A computer screen, a helpful website and someone on the phone when needed may be just what people really want, and entrepreneurial advisers may be well placed to deliver it. Technology is opening up many avenues and advisers have a great opportunity to own the new world of advice.
Technology is opening up many new avenues and advisers have a great opportunity to own the new world of adviceKevin O’Donnell is a financial writer and journalist
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