During outbreaks in Elizabethan times, various measures were taken in an attempt to prevent its spread. Bonfires were lit in the streets of London in an effort to purify the air. The Queen ordered the ringing of church bells throughout the city in an effort to drive away the bad spirits believed to be the source of the problem.
Putting this simply, the authorities of the day were trying to solve the right problem, but they had the wrong solutions.
Credit to the Financial Conduct Authority, core advice is an attempt to address the huge challenge of getting more UK savers to invest. The FCA estimates there are more than 4mn people that hold more than £10,000 in cash and have some appetite to invest.
We harbour serious reservations about whether the core advice proposals will help to solve the problem.
As a firm we strongly support the regulator’s overarching aim of encouraging people who might have ‘excess cash’ to invest that money for the long-term, in line with their risk appetite and financial goals.
But we harbour serious reservations about whether the core advice proposals will help to solve the problem. In fact, they may create unhelpful unintended consequences.
A new advice market?
The regulator’s solution to the problem is to introduce a new tier of financial advice, with a narrower scope and scale. Core advice will act as a transaction-focused, entry-level service for customers that cannot afford full advice and are not confident enough to self-serve with a DIY platform.
It will be limited to advice on new subscriptions into stock and share Isas, with the advice limit set at the Isa annual subscription limit – currently £20,000 a year.
Although the nature of the advice given can be ongoing, the expectation is that the vast majority of core advice will be one-off, transactional interactions.
The consultation proposals do not specify a fee cap but point toward a fee of around 1 per cent being the norm.
At a practical level then, it is worth asking whether there is a viable market here.
I worry that firms providing core advice will encounter both regulatory complexity and a lack of economic incentive.
The FCA’s own research suggests most customers would be willing to pay £100 for advice on a £10,000 investment (that is, a 1 per cent one-off fee). If this proves to be the case, for most advisers, this would not come anywhere near covering the overheads associated with giving such advice.
Unsurprisingly then, just 7 per cent of advisers we surveyed recently said they were hoping to offer core advice.
