A thriving financial services industry relies on being able to provide consumers with choice. And it is vital that consumers are able or feel confident enough to exercise this choice.
Across various retail markets this has not been the case, and it is for this reason that we have been vocal supporters of the Advice Guidance Boundary Review, which has been progressing over the course of the past year.
We have, of course, been here before. This is not the first time the UK’s advice gap has been addressed, but there is a very real feeling across industry that this time could be different.
The outcome of this review should not be that ‘the advice gap’ as traditionally understood is closed – by that I mean it is unrealistic to expect everyone to receive financial advice.
Instead, we should focus on ensuring that people have access to the right type of support at key points across their financial journey when they need it most.
In this respect, I have always found it more useful to consider the ‘advice gap’ as more of a ‘support gap’.
Were I to be critical of the proposals put forward in the discussion paper, it does appear – to me at least – that ‘support’ is viewed primarily through the lens of supporting people to transact, as if the UK’s advice gap is seen primarily as the absence of support to get UK consumers to buy better products.
Good advice often does not result in the purchase of a product at all; it is about reassurance and creating the confidence to navigate complexity.
This should also be the case for targeted support – one of the proposed regulatory interventions of the paper.
The process needs to be geared towards ensuring the consumer feels they are being educated and supported.We see two models of targeted support outlined within the paper: one that allows firms to proactively intervene when consumers are making decisions with the provision of targeted, personal information; the other resembles more of a guided process, which ends with the consumer making a decision about the purchase of a new product.
The first model builds on what we think the Financial Conduct Authority would like firms to do within the current regime. It is common sense that firms can proactively intervene in circumstances where a consumer is potentially doing something tat could be seen as foreseeable harm.
We think it is right that a pension provider, for example, can proactively warn a consumer that their withdrawal rate may be unsustainable, and they run the very real risk of running out of money.
With respect to the second model, it is vital that consumers do not implicitly believe they are being recommended a specific solution.
For this reason, we are clear that the process needs to be geared towards ensuring the consumer feels they are being educated and supported throughout the process in order to help them make their own decision, rather than being guided to an outcome where even a ‘people like you’ suggestion feels like an explicit recommendation for them.
There is absolutely value in guiding consumers towards a suite of product suggestions – without it we think consumers will be left with more questions than answers – but we also have to be mindful of the risks of doing so.
I have written previously in these pages about the potential risks of product churn and signposting towards inappropriate solutions that this review could produce and, to an extent, these risks still exist within some of the models of targeted support set out within the paper.
Realistically we think these proposals will benefit investors who are already somewhat engaged and will guide them towards better outcomes. In the case of disengaged consumers decumulating we also think they may be beneficial – the overwhelming power of inertia notwithstanding.
If the purpose of the proposals outlined in the paper is to turn more savers into investors, we believe that the simplified advice proposals may be of more value.
To make simplified advice attractive to firms, they need to understand the risk of giving it.Research conducted by Pimfa suggests non-investors are more likely to begin investing with the help of a personalised recommendation and the ability for them to receive one – at a lower standard and a lower cost – is welcome.
These proposals build significantly on the previous core investment advice proposals and feedback suggests that there is significantly more interest in offering this, however some questions remain.
To make simplified advice attractive to firms, they need to understand the risk of giving it. For this reason, we believe the process should be as prescriptive as possible in order to manage liability and ensure that only relevant information is captured.
This means simplified advice will be a transactional activity rather than one that gives any real consideration to planning.
In line with our belief that the focus should be transactional, we continue to believe that the sale of decumulation products should be in scope.
A simplified advice process – like a targeted support process – should not be able to tell you how to decumulate, but it should be able to recommend what you should decumulate with once a decision has been made.
Finally, the presence of a monetary cap remains entirely arbitrary and serves little to no purpose, even if its intent is to distinguish simplified advice from full holistic advice.
There is some correlation between the amount of money you have and the complexity of your needs, but this is not always the case and there are people with savings of well over £100,000 who would certainly benefit from a simplified advice process.
It seems unlikely to us that the changes proposed in this paper will be implemented in the very near future. We are clearly closer to the beginning of the change we all want to see rather than the end.
But this time it really does feel different. This time we really might have found a way to close the UK’s support gap.
Liz Field is chief executive at Pimfa
