It was not a question that the Financial Conduct Authority was looking to answer with its recent proposals for a new simplified advice regime for customers not investing for the long term, but it is an area that simplified advice will nonetheless help to address.
If enacted, the regulator’s proposals could not come a moment too soon. For our industry, being able to effectively develop intergenerational advice relationships is more important than ever.
One of the main issues to overcome has been affordability. Younger generations are far more likely to have much simpler financial needs that do not justify a full advice price tag.This is the era of the ‘great wealth transfer’ – a tectonic shift where as much as £5.5tn is expected to be passed between generations within the next 30 years.
Here, advisers have a critical role to play. Their expertise and support will be invaluable to those at both ends of the wealth flow.
But the first challenge our industry needs to address is ensuring advisers are in a position to serve both those giving their wealth, and those receiving – and this includes keeping advice business within the family.
Many of those passing on wealth already actively want their beneficiaries to receive financial advice. They know the value an adviser brings, first-hand, and they want their loved ones to have the same assistance.
Often, they will also rest easier knowing that professional help is in place to prevent the money they have worked so hard to build being squandered by their beneficiaries through mismanagement.
One of the main issues for advisers to overcome, historically, has been the affordability of the offer. Younger generations are far more likely to have much simpler financial needs that just do not justify a full holistic advice price tag.
There is valid question over just how profitable and feasible it will be for firms to establish two advice lines.Previous attempts to develop a simplified advice regime have failed as the regulations have not protected the adviser from a retrospective wider review.
This time it might just succeed. The FCA appears to be genuinely keen to find a way to get this to work. There are a couple of clues.
Firstly, by ring-fencing their proposals to stocks and shares Isas only, it is limiting risk for customer harm by making it an investment decision only. Secondly, by focusing on advice rather than guidance they are recognising that the consumer need and demand is for advice – not for a gentle nudge.
The simplified regime that the FCA proposes is designed to be lighter on regulatory requirements and as a result cheaper to deliver.
This in turn will help advisers better meet the needs of their mass affluent clients by making it possible to offer advice to younger generations at a price point that is reasonable for their circumstances.
This lays a plank on the bridge between generations, and will be an important step towards securing good outcomes for those giving, and those receiving, funds.
Advisers should be alive to how a simplified advice regime can help span intergenerational divides.Now, there is valid question over the FCA’s proposals regarding just how profitable and feasible it will be for firms to establish two advice lines – one for ‘traditional’ advice, and one for the simplified regime.
However, those who can justify the service could see their investment deliver returns of multiples more over the long run by helping develop a pipeline of advised clients of the future.
While those accessing simplified advice today may not currently have financial circumstances that justify traditional advice, they may do in years to come.
Building formal relationships with them now will help firms retain their business as their finances become more complex over time. The simplified advice clients of today could very well be the advised customers of the future.
The road ahead
It remains to be seen whether the FCA proceeds with its proposals for advice simplification, or if it chooses another approach.
Whatever the outcome, advisers should be alive to how a simplified advice regime can help span intergenerational divides.
A simplified regime will not be the right option for every firm.
But for those where it is relevant and makes commercial sense, delivering it will not just support better outcomes for clients. It will underpin future client lists, too.
It is an opportunity they cannot afford to miss.
Noel Butwell is chief executive, adviser at Abrdn
