FAMR and the cost of advice

Debates centre on the tangible cost to customers, but the role of advice and, more importantly, the value of advice, are often overlooked. This focus on cost has led to a proposed solution of a “middle way”, where customers can get tailored information and guidance at a lower cost than full advice, but more guidance than if they information only.

It’s easy to jump to the conclusion that this is provider led, but if a suitable middle ground was introduced there would be more, and better, information for all customers. This in turn grows the market for everybody involved.

Additionally, there would be better outcomes compared to if customers had taken no action, which is what many customers do today.

For the long term, this approach is part of a longer customer journey and could help to address the savings gap. Many people spend a large proportion of their working lives saving in what they feel is the best way, and don’t think about what their retirement will look like financially until it’s too late to make significant changes.

A changing regulatory landscape makes it difficult to plan for the future

For many of these people, paying into a pension is “good enough”, but this has resulted in average pension pot size of approximately £43,000 for customers, leaving a significant savings gap at the point of retirement.

As well as this savings gap, there’s a huge financial planning gap. Worryingly, almost half of all unretired people haven’t actively started planned for their retirement, and less than 1 in 52 have spoken to a financial adviser. Even for those who have prepared, there is a general lack of understanding of how much financial advice would cost.

Source: Aviva/Friends Life/Unbiased

If people in their 30s and 40s can receive better information about saving effectively and growing their pension assets, and can do so in a way that they consider to be cost effective, they will accumulate pots that give them a much wider range of options, including complex solutions which would require full financial advice.

These consumers who had accessed tailored information earlier in life, and have seen the benefits for themselves, are likely to have a better understanding of the role and value of advice, as well as potentially building a relationship with an adviser firm sooner and creating a longer customer lifecycle for clients. This is a mechanism to getting more customers into the market, growing the market for more tailored outcomes and future proofing the savings and advice market.

It’s easy to talk about long term benefits, but the last few years have shown us that a changing regulatory landscape makes it difficult to plan for the future. So let’s talk immediate impacts. A “middle way” approach still brings opportunity for firms who may be able to offer tailored information through their QCF Level 3 advisers, who are progressing towards Level 4.

This creates opportunities for advisers to gain experience with clients, bring an income into the firm while they are training, and support a lower wealth group in a profitable way. Of course, the key word here is profitable, and there must be the right support from providers and the regulator.

Like all changes in recent years, FAMR will provide challenges for advisers and providers. But those who are prepared to adapt and innovate, and see this is an opportunity to embrace a growing market, will be the winners, as well as customers overall.

Tim Orton is the chief executive of the Aviva Adviser Platform