Decoupling the advice from the product holds the key to closing the advice gap.
Sandra is a self- employed physiotherapist. She recently graduated from University with a 2:1 and has set up a private practice. Like many graduates she has a hefty student loan to repay and she recently bought a flat in Bristol with a mortgage.
With so many financial outgoings as well as investing in her business, it’s a wonder she has any time let alone money to put aside for her retirement.
Yet Sandra likes to plan ahead and is determined to begin saving. But she’s not sure how or where to start, and she’s not sure who can help her.
The Retail Distribution Review (RDR) has made it harder for our imaginary case study Sandra, and for millions of real people just like her. Whereas before she could have employed an IFA to help her, she finds it much harder to access that advice today.
The £250 a month she’s hoping to set aside each month just won’t generate enough in fees to justify taking her on as a client. The yearning ‘advice gap’ the media so often write about has swallowed her up. Our industry cannot help her.
The dawn of the robo adviser was meant to change all that- they are meant to leverage the power of technology to provide cheap, instant advice to customers who cannot afford face to face financial advice.
But do they? In my view, they are a complete misnomer, their name promising something they cannot deliver- instead they merely corral users down a series of decision trees.
It is all very misleading. What they really are is a clever tool to help investment houses gather ever more assets via their platform businesses that they can charge more fees on.
They offer basic cash modeling that may tell you what you’ll end up with in 30 years time if you save £100 cash a month. But they won’t advise you on how much you’ll need to live on in your retirement.
They also highlight the fundamental problem with our industry, which is our fixation with fees as a percentage of assets under management, or custody. That system is broken and we need to find an alternative cost structure if we’re to help address the chronic savings gap in the UK.
The problem is completely of our own making. For decades we have conditioned customers to believe that our services were free- they never paid any commission! Or they believed they didn’t.
How do we fix this? We must find a way of convincing customers to pay for our advice. This is easier said than done and I am not offering any easy solutions