There are a lot of reasons why the advice gap has not yet been filled, but the biggest is the difficulty in developing a business that targets investors with a lower level of wealth than the usual adviser’s client, experts have said.
Speaking at Boring Money’s retail investor conference, Ruth Handcock, chief executive at Octopus Investments, said the advice gap is massive and interesting, but scaling a business to fill that gap is hard.
“When you start to scale a business that relies on people and also relies on technology with thinner margins, you know, it's more like running a big retailer than it is running an advice firm and that presents completely different challenges.
“One of the problems in the industry is the capital to do this.”
The market has not yet established what digital advice looks likeAndrew Firth, Wealth WizardsVenture capital investors tend to focus on digital businesses with a path to scalability and high margins.
“[Investors are] looking for billion pound businesses, and those businesses operating in this hybrid advice space are less likely to be able to prove that [they can scale]...and it’s not a cheap thing to do.”
This means that firms trying to fill the advice gap need to have a really long term outlook, Hancock said, and should look at the beneficiaries and spouses of their existing customers and thinking of how to make their business relevant and give customers value in the future.
Andrew Firth, founder of Wealth Wizards said his company had “made the numbers stack up”, but highlighted the difficulty of building a new brand and acquiring customers.
“The market has not yet established what digital advice looks like.”
The industry is at a tipping point however, he said.
Advice gap
Boring Money defines the advice gap as UK investors who are not advised and have low confidence when choosing investments, and cash savers with £10,000 or three months’ salary in savings who are willing to invest.
According to the firm, 12.7mn UK adults fall into this gap, and 6.3mn of these said they would prefer digital advice than the face-to-face services of an IFA.
Reasons for the preference included lower perceived costs and greater convenience and flexibility.
Boring Money said this meant there was an estimated addressable market for digital advice of £355bn.
A number of firms have tried to plug this advice gap, launching campaigns to close the gap and raise awareness of the benefits of financial advice.
sally.hickey@ft.com
