Earlier this month, the Treasury and FCA published their ‘call for input’ into the Financial Advice Market Review.
Pioneered by the financial secretary to the Treasury, Harriet Baldwin, the review has set out with the admirable objective of improving consumer access to financial advice. The government has issued an open invitation to advisers to submit opinion and evidence by 22 December which will inform any policy output for the review.
Today, we have a professional advice industry; advisers need to be accredited, trained and pass exams. It is not unlike other professional services in which the UK is a world leader, such as legal services or accountancy – but the perceptions are not the same.
There are fewer than 25,000 financial advisers in the UK, compared with over 30,000 two years ago. Meanwhile there are 150,000 legal professionals and 330,000 members of accountancy bodies. So while the demand for professional advice is growing, there are too few providing the service. Meanwhile the challenge of serving those at the lower end of the market is similar to the challenge of providing legal services to those who can least afford it. And, similarly, the sector has to work alongside government in finding sustainable solutions.
The FAMR consultation refers to the ‘advice gap’ as a key focus of the review. This in itself is a positive first step, recognising publicly that there are problems with consumer access to financial planning services, and that we would all benefit from improved availability of advice. Equally pleasing is that this promises to address both sides of the advice gap equation, by examining supply and demand.
Looking for a moment at the issue of healthy consumer demand for advice, the review recognises that not everyone sees the benefits of financial advice as readily as they might. The review paper suggests that “making consumers more aware of the long-term benefits of seeking financial advice could help stimulate engagement among those who have a need for assistance but are not currently willing to pay”.
Encouraging consumers to consider the value of advice, rather than simply the cost, would be a significant step forward. The benefits of advice are often not felt until many years into the future, perhaps when the security of comprehensive protection cover ensures stability of household finances during a difficult period, or when a sustainable retirement income strategy continues to support individuals throughout their lifetime after work.
We are all hard wired to place additional value on prosperity today, and struggle to defer reward until tomorrow. Advisers are well positioned to help consumers understand the value of investing for the future, but they must command a fee for doing so, and the value of that service may not become apparent to the consumer until much later.
As the consultation document puts it: “Some consumers may find it hard to gauge the value of advice because the benefits are usually deferred over time and more intangible than for purchases of non-financial products.”