James Coney  

Advisers should offer interest-free credit to clients

James Coney

James Coney

When you buy a sofa, floorings or a car it is not unusual to take out interest-free credit. It is quite common, in fact, for any high-value item where the thing you are purchasing is going to have a tangible benefit for you for a few years to come.

So why not for financial advice? It would be particularly relevant for those who want some kind of planning at different life stages, but have the confidence and time to be able to manage their own money in the intervening periods.

One of the big ironies of the financial advice market is that while pre-Retail Distribution Review commission led to poor outcomes for consumers on many occasions, it did make the market more accessible.

Again, as with all things in the industry, it was the greedy and the immoral who ruined it for those who upheld high standards.

What is clear today is that there are many great challenges for financial advisers and planners, particularly those who are truly independent. As the market shrinks, the burden of the cost of regulation becomes tougher and the challenges from vertically integrated businesses and giant fund houses grows.

For years now the two great problems for the future of financial advice have been the costs of regulation and finding new customers.

They are not unlinked. And the big threat coming round the corner is what Vanguard is going to offer. It has already won hearts and minds of savers, a knock-out financial advice service could be a game changer.

Meanwhile, the corrosive nature of fees is finally starting to hit home to consumers. At times like this, innovation is what is needed, and particularly in relation to charges. 

In the decade or so that I have been writing in these pages, I have discussed many times the challenge of showing value with financial advice, because tangible outcomes are very hard to judge over a short space of time.

The last time the Financial Conduct Authority looked at the advice market – in 2019 — it found that only 8 per cent of all consumers had regulated advice, rising to 17 per cent for those with more than £100,000. 

But a further 20 per cent of all consumers, and 29 per cent of the richer savers, had some kind of guidance – this is the market to target, these are the consumers who want financial advice but for one reason or another chose guidance instead.

The question is why did those consumers choose guidance rather than advice? If you look at what is happening post-contingent charging ban on defined benefit pension transfers the message is clear – large upfront advice charges put off savers.

So, time for interest-free credit. Whenever this idea is mooted I hear advisers scream that you need a consumer credit licence and that it will add to admin charges and costs.

Goodness, where is your imagination? Thousands of companies up and down the country, big and small, use interest-free credit, often outsourcing it to a third-party provider, to boost sales.