'Could progress really be on the cards for the advice gap issue?'

In my career, I’ve seen perhaps four or five consultations and reviews aimed at tackling this issue, from the Sandler review back in 2002 to the Financial Advice Market Review that followed the Retail Distribution Review, and on into the FCA’s regulatory sandbox.

It's a notoriously tough nut to crack, because it stems from what former Treasury minister Andrew Griffith described in parliament last year as "unintended consequences". 

The FAMR recognised that RDR was a game-changer in terms of the professionalisation of the advice industry and the quality of advice people receive.

However, if you’ve been around as long as I have, you might also remember that in the run up to December 31 2012 advice firms began segmenting their clients for the first time.

Slowly but surely the bar was raised in terms of the minimum revenue clients needed to generate – often equated with the minimum wealth clients needed to hold – for firms to be able to service them. 

What the majority of people want is to know what’s right for them and what they should do as a result.

This has created an advice gap, not only in the country but for firms themselves, who have a gap in their ability to service clients who don’t today have the asset base that makes full advice economic, although they may do in the future.

In many firms, smaller clients contribute material amounts of revenue and profit, but many others cannot make the maths work – and those who can are finding it harder and harder. 

The consumer duty is another step change for the industry, but the FCA recognises that it risks putting advice further out of reach without deliberate measures to offset the unintended consequences.

Just before Christmas I spoke to a highly successful chartered firm that has grown continuously over two decades, but which has a fairly large cohort of smaller clients. Given the increased cost to serve under the new regulation, the firm genuinely doesn’t know how it will retain this part of its client base.

The latest attempt to address the issue is therefore welcome. Any regulation that preserves the quality of advice and the standard of consumer protection, but at the same time allows firms to engage with both new and existing clients in a way that works economically, has to be a good thing. 

But this is an entrenched problem that has proved resistant to previous efforts. Could progress really be on the cards this time? 

The first of the regulator’s proposals – that it will provide more examples to clarify the advice guidance boundary – can only be helpful. Firms currently steer clear of anything they perceive as skating close to the line, particularly when it comes to guidance in relation to risk.

Removing the ambiguity here would be relatively simple and would make a difference. 

Next up is the targeted support proposal, which would allow firms to communicate to everyone in a target market with helpful ‘people like you’ messages: ‘You might want to top up your Isa’; ‘You might want to top up your pension’. ‘Just retired and sitting in cash? You might want to think longer term.’

This has the potential to be extremely powerful in the hands of advice firms that have embraced target markets in their approach to consumer duty.

The final proposal – simplified advice – would enable firms to make recommendations in certain cases based on a limited fact-find. Again, this is a good thing.

Regulatory requirements should be proportional to both potential benefit and potential harm, so anything that would enable a firm to make a recommendation on an Isa, for example, without undertaking a full holistic review could make a big difference. 

Importantly, the three proposals are grounded in the work that’s been done over the past two decades – and, as such, they reflect advice firm realities and genuine consumer needs.

The regulator’s proposals have the potential to provide a more proportional approach to this challenge.

As the regulator notes, one trend that has emerged in recent years as a result of efforts to fill the gap is the growth of robo-advisers, but these have not been able to crack the customer acquisition challenge. Why not? Because robo-advice is not advice at all, but robo-product sales – and clients can see that. 

What the majority of people want is to know what’s right for them and what they should do as a result.

The regulator’s proposals have the potential to provide a more proportional approach to this challenge: full advice for people that value it and need it, and guidance for those who want good generic information – with the regulated industry empowered to provide that guidance. 

And, in the middle, the ability to provide targeted support to groups of clients, enabled by the huge strides in technology that make it easier for firms to segment clients digitally and communicate digitally. 

In 2022, 4.4mn people received advice – just 8 per cent of the adult population. The key to increasing that is to boost the productivity of advisers, giving them the time back to be able to serve more clients.

Now, the problem could be addressed from two directions at once, with technology reducing the time to serve as regulation empowers firms to meet client needs in new ways.

The established industry could soon bring quality advice to a much wider range of people, narrowing the advice gap in the firm and in the nation.

Ben Goss is chief executive of Dynamic Planner