Advisers are finding a market in the advice gap

Yes, just three days into the second year since the RDR was introduced and we’re already running headlines highlighting the ‘advice gap’ the rule changes are believed to have exacerbated for lower-value clients.

It’s like January 2013 all over again. Many in the adviser sector displayed considerably more prescience than the Financial Conduct Authority or its predecessor and had been warning about this for two years or more even by then.

But rather than repeating the gloom that has characterised this phrase in the past, this morning we brought some New Year cheer as we reported on a service that has been developed to bridge the gap - and with a proper advice offering.

IFA Proactive Financial Management has launched a new authorised representative that will engage with customers online, offering a simplified process that substitutes costly and time-consuming face-to-face meetings with virtual contact channels and a range of online tools.

Monibox is a model portfolio-based restricted advice offering that retains the essence of advice in the form of a tailored personal recommendation, but that will set clients back just £300 a year paid as a flat fee.

I’ve long believed that there exists a market in the advice gap for innovative intermediaries and it is models such as this that could point to a future for client interaction that does not rely on potentially harmful self-direction.

Don’t get me wrong, the non-advised services that many have launched have their place. But I also think the Financial Services Consumer Panel’s recent damning report on their use in the annuities market, which warned of bumper hidden commissions, inappropriate product bias and potential client detriment, could be instructive on a wider basis.

It took the watchdog a long time to accept that a gap even existed - it hadn’t even modelled for the effects of the move to fees on access to advice for small-pot clients at the time the RDR was implemented.

FCA chief executive Martin Wheatley finally acknowledged what others had long prophesied in September last year, when he admitted to the Treasury Select Committee there was concern within Canary Towers that the move to fees and the exit of a number of advisers, and particularly banks, from the sector would disproportionately hit so-called lower-value clients.

Since then the evidence has mounted: separate studies published in December revealed that 14 per cent of advisers may have turfed out existing clients they feel are no longer viable, with as many as 60,000 consumers potentially being left without recourse to an adviser.

Both studies, among others last year, set a threshold of around £50,000 below which advice fees are difficult to justify or simply off-putting to prospective advice-seekers.

I’ve long believed that there exists a market in the advice gap for innovative intermediaries that does not rely on potentially harmful self-direction

But Mr Wheatley did hint at some hope for the disenfranchised as he cited “the arrival of web-based, internet based entrepreneurial type models that are delivering advice in a different form”.

We had by then already seen a number of examples of advisers launching services targeted at clients with small investment pots, though in truth most of these sit at the ‘non-advice’ end of the spectrum and could not be described as ‘advice in a different form’.

The arrival of Monibox, which is not the first of its kind but is among a select few and with a pricing hook that sets it apart, is more what I believe Mr Wheatley was talking about. If he wants to see more of this - and protect the future of advice at the same time - there is more the FCA could do.

The problem with low-value offerings of this nature is that they rely on generating high-volume business and, while they are comparatively time efficient, a fully qualified adviser still needs to spend time servicing clients that are paying a fraction of the amount paid by others on the firm’s books.

If the FCA were to lend its weight to, and create a defined framework for, models like this and acquiesce to them being staffed by advisers at a qualification level below the RDR minimum level four threshold, this sort of service could be offered to clients via new entrants as they complete their studies.

This would then also provide an economical model for adviser firms to bring new blood into a sector that no longer has the incubators of old - the bancassurance arms and life company direct sales forces - to provide a conveyor belt of new talent.

I’m delighted to see market-based solutions being generated to tackle this most pernicious of RDR ill-effects, but this is an area that could certainly benefit from regulatory involvement.