Opinion  

Clients would not buy a low-cost parachute

Ken Davy

Ken Davy

In today’s world, with its constant focus on regulation and compliance, it is all too easy to forget what this great business is really about: ensuring our clients enjoy good outcomes from the savings, investments and protection plans we arrange for them.

Good outcomes do not necessarily mean finding the cheapest products or charging the lowest fee. Most clients would never buy the cheapest fire extinguisher – or parachute. So why the obsession with the cost of financial advice?

This is particularly relevant in relation to savings and investments, where it is impossible to forecast what the outcome of a purchase today will be far into the future.

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What clients value is impartial advice from someone they trust, who will use their expertise to best advise them.

If we do that right, complying with regulations simply becomes a natural part of the advice process. It is only if you try to shoehorn clients into preconceived or standardised solutions, rather than carefully considering their personal circumstances, that you create potential compliance or regulatory problems.

Unfortunately, because personal financial planning requires creating a tailored plan for an individual’s situation and circumstances, it takes time. The more time it takes, the greater the cost.

And post-Retail Distribution Review, fewer advisers are able to subsidise their less well-off clients in the way they have previously. On top of this, changing regulation has meant that in the past 30 years, adviser numbers have dropped from 250,000 to just 25,000.

How then does one resolve the seemingly impossible conflict of good outcomes combined with today’s costs placing advice beyond the reach of many consumers?

In the Financial Advice Markets Review, the Treasury and Financial Conduct Authority concluded that the answer was robo-advice. However, evidence suggests that this is unlikely to meet most consumers’ needs.

This is great news for financial advisers, as in this new world they have the potential to gain a unique advantage. The winners will be those who combine their experience and expertise with time-saving advances in technology.

It will not be robo-advice, but instead personalised advice supported by automated systems and processes. This will take less time and will therefore be delivered at a lower cost than the current labour-intensive business models.

I have no doubt that this combination of people plus technology will deliver a win-win result, both for clients, advisers and society, ensuring more people are protected and prepared for the twin dangers of living too long or dying too soon.

Ken Davy is chairman of SimplyBiz Group.