The UK is saving less. According to the Office for National Statistics (ONS), our household saving ratio has fluctuated dramatically in recent years, due to recession and economic turmoil, but the long-term trend continues to fall. The huge changes can be seen in Chart 1. But that trend has failed to deter a blossoming market emerging to compete for those savings and pension monies that, together with Isas, are a valuable part of that prize.
Harnessing technology, the internet in particular, is driving this expansion. In comparison to other online retail markets, financial services are relatively late to the party. Just 15 years ago, very few financial transactions were handled online. Internet banking was still in its infancy, smartphones were but a twinkle in Steve Jobs’ eye, and financial products were distributed largely by banks and insurance companies via tied agents and financial advisers. The concept of buying financial products online, and continuing to make investment transactions within them, was largely alien and wholly scary to many. Savers were not ready to place their money and their trust in their desktop PC.
It says a good deal about both the changing reputation of financial services and the shift in consumers’ willingness to embrace and place trust in technology that so many savers are now willing to turn to self-directed solutions online as an equally viable alternative to seeking personal advice. It is a demand that so many providers are looking to capitalise upon, and pension investors are a captive audience, but where does that leave the role of the adviser?
Technology has empowered the saver but it also presents them with other challenges. Consider the first-time saver. Perhaps they have just changed job and want somewhere to look after their £30,000 pension fund. There is a bewildering array of different self-invested personal pension (Sipp) providers, platforms and online brokers to choose from.
Savers are normal consumers and will therefore tend to make irrational decisions that may or may not turn out to be successful. Few know exactly what they are looking for and will not follow the same due diligence processes that an adviser would undertake before making a recommendation.
It is inevitable that the majority will be driven by headline prices for key services, irrespective of whether or not they will end up using them. Providers know this, of course, and how they advertise will not have escaped the attention of many advisers.
If the choice of providers is bewildering, the number of investment options now available to transact online is simply astonishing. Thousands of collectives await our novice saver, alongside equities from not just the FTSE but other markets as well. All come with differing levels of descriptive information, performance data and risk profiles. Many are backed up by big-budget advertising and sponsorship deals. Once again, the decisions that the novice (or by this stage, even relatively experienced) saver makes are likely to be largely irrational and not closely linked to their goals.
An adviser can add value to most decisions that a saver needs to make. But the most important decisions needed still tend to be those ones where technology has yet to make an impact, or perhaps where providers are less concerned about their need to play a role.