There appears to be grave concern for the future of advice in retail financial services. I believe it is over-egged.
The issue is the value added by the ‘advice’. We all know (well most of us) that ‘advice’ was for many simply ‘sales in drag’.
For those starting out in life and feeling they should do as their dads had done it was not difficult to sign up to a commissioned endowment savings product without sufficient thought about its flexibility or value. Those days are over.
Instead it is now common practice to clearly convey the need to consider paying off debt, and whether the savings habit can be sustained. More importantly the cost of regret is low. Once up to two years of an individual’s hard-earned savings could be lost if a regular savings policy was cancelled. That was very bad value and we all know it.
The simple solution for someone starting to save for the long term is a regular contribution to an Isa. Inherently there is no additional penalty to be borne by the investor. After a year the value of one year’s contributions of £250 per month will be close to £3,000, plus hopefully some growth.
The problem is, of course, that the cost of conveying that message in person to someone saving £250 a month will still cost them at least two or three months’ contributions.
The adviser can’t afford to do it for less and the investor won’t benefit unless someone does. That, the FCA would say, is why we have ‘non-advised’ and ‘simplified advice’. The latter is proving a hard nut to crack.
How to steer a route through the FCA rules without excessive risk of systemic failure or unpredictable exposure to the Financial Ombudsman Service?
The result, regrettably, is a dearth of propositions and the risks are too great. The FCA’s straight talking is good but in this case makes simplified advice even less likely.
The non-advised route, as I have said before, has dramatically more potential. The challenge here is how do we get people to trust the website and provider sufficiently to engage? That will take time and the press should help in this process.
So in an ideal world, the straightforward needs of an investor will be met via non-advised services.
The role of the adviser is becoming more one of providing sophisticated advice in areas of tax efficiency, sophisticated investment solutions and cash-flow planning.
These are skills that many investors don’t want to develop themselves. The more value that can be added here, the easier it will be for advisers to charge clients a fair fee.
An emerging area of specialist competence is ‘divesting’ or ‘disinvesting’, whereby advisers match attitude to risk with the requirement for income and available investment products and likely investment conditions. This is sophisticated stuff where real value can be added.