When you think of an investment platform, managing clients’ investments online or DIY investors are probably what come to mind.
But platform providers have begun stepping into the advice space in a bid to address the advice gap.
Just one in 14 people paid for advice in the past two years, a survey for OpenMoney found.
“Digital advice services are filling what has historically been a huge void between DIY investing and ‘full fat’ advice,” says Anna Stoughton, relationship manager at Boring Money.
Last year, as reported by FTAdviser, seven digital advice businesses came together and launched a campaign to tackle the growing advice gap. The group, called the Digital Advice Group, is chaired by Boring Money's chief executive Holly Mackay and aims to promote the benefits of financial advice and alternatives to traditional, face-to-face models.
“Five to 10 years ago, consumers were faced with an all or nothing choice between picking funds on a direct-to-consumer platform, or sitting down to speak to an adviser face-to-face. Thankfully, there is now a much broader spectrum of options to choose from,” says Stoughton.
Bestinvest, for example, has introduced one-off, fixed-price advice options as part of its "reinvention" of online investing, with client meetings taking place over a video call or by telephone.
The platform’s goal-based investment advice (at £295) recommends a ready-made portfolio, or asset allocation if the investor wants to make their own fund selections.
Meanwhile, an investment adviser can examine a saver’s investments and make recommendations in a portfolio health check at £495.
It follows the April launch of Vanguard’s advice service for retirement savers, at an all-in cost of 0.79 per cent for investors with at least £50,000 saved on the personal investor platform.
Service levels increase with the amount invested. Clients with more than £100,000, for example, have access to telephone or video-based financial planning support, while clients with more than £750,000 are supported by a dedicated financial planner.
M&G Wealth also launched a hybrid advice business as part of its existing customer base in late 2021, initially targeting pre and post-retirees in the decumulation phase, with a wider launch to an external customer base expected later this year.
Clients, often with modest wealth and simpler financial needs, will be able to access advice they currently find difficult to obtain due to cost or the impracticalities for an advice business to serve smaller investors, according to M&G.
2022: the year of the digital adviser?
Janine Menasakanian, investments consulting director at Altus, says there will undoubtedly be other digital advice service launches.
“In the investment platform space, there is recognition that ‘fund buy lists’ and ‘how to guides’ are just not sufficient anymore. They only go so far, [and] in any case consumer confidence in these fund lists has somewhat diminished after Woodford-gate.
“Therefore offering either guidance or some form of digital advice seems like the next best step in the platform space, and those with focus on at-retirement planning and pension consolidation will be the winners, because that is where consumers need most help.”
Simon Binney, business development director at Wealth Wizards, an advice technology provider, likewise says the advice landscape is undoubtedly changing.
“[It] will soon look a lot different to how it is now, even within the next year. Adoption of technology is driving this, in particular the accelerating use of hybrid advice offerings, automated and digital-first approaches, which enable companies to deliver cost-effective advice to markets that previously were unprofitable.”
Indeed Boring Money boss Mackay says it is working with a number of businesses that will bring "bite-sized" advice solutions to market this year.
It’s simply horses for coursesHolly Mackay, Boring Money“It’s important to see digital advice as an alternative, not second best, but also not a direct threat to the financial planning industry,” says Mackay.
“Some people will prefer the relative anonymity or flexibility of a digital service. For others it will be a price-led decision. And some just won’t have the complexity to necessitate a more bespoke, personalised and ongoing service.
“It’s simply horses for courses and evolution, rather than a direct threat.”
Ben Peele, managing director at PortfolioMetrix, draws a comparison with the asset management industry, where passive funds have “cannibalised any expensive closet trackers, leaving space for only cheap passive funds and truly active managers.
“In the same way, Vanguard’s advice offering can be expected to displace expensive but simplified advice offerings. But there will always be clients willing to pay for higher value-add, full advice offerings.”
In its initial disclosure document, Vanguard says its personal financial planning service will not be suitable for an investor who, among other things:
- Requires holistic financial advice that includes, for example, estate planning, life cover or income protection;
- Requires financial advice covering the combined finances of you and a partner; or
- Wants advice that takes into account all available products across the investment market.
Peele says that whether Vanguard’s advice service presents a competitive threat is more of an issue for any adviser who ties their value solely to fund picking.
“The Vanguard proposition offers something comparable at a materially lower price.
“However, for those advisers who have transitioned to focusing on holistic financial planning, they are providing a wide range of value-added services that Vanguard’s offering can’t match, which justifies any additional fees.”
Menasakanian at Altus agrees: “[Vanguard’s] advice is not holistic, nor is it as comprehensive and all recommendations are into Vanguard funds.
“Vanguard has a great range of funds, but some investors may want to invest in stocks and shares, in alternative assets or be more considered about their [environmental, social and governance] preferences.
“These nuances and requirements can only be accommodated through tailored financial advice.”
As such, Menasakanian says that clients who get value from their existing adviser will stay loyal and continue to benefit from holistic planning.
“However, I’m sure there are many people who have been paying recurring fees and not received a service they have valued, [and] it would be those clients who may be enticed by digital offerings, including Vanguard’s.”
Binney at Wealth Wizards adds that Vanguard and others in the advice market are unlikely to be a threat to smaller, bespoke financial planning businesses, which need perhaps a few hundred clients to be profitable and continue trading, and which are largely replenished and grown through referrals.
But for larger companies looking to grow their businesses, especially into the lucrative mass affluent/advice gap market, it is becoming increasingly competitive, says Binney.
“Early adopters will steal a march on their competitors because hybrid advice offerings need to be built on trust and incremental engagement with the customer.
“And once part of the service, clients are likely to remain loyal to it. Laggards to the market could well become the Blockbusters to the Netflixes of the financial advice world.”
Although Vanguard is for now focusing on offering advice to clients saving for retirement, a spokesperson says: “Since launch, we’ve been serving clients, building relationships with them, and importantly gathering feedback on the kind of additional features investors are interested in.
“Over time we will also cater to people in retirement, and those with other investing goals.”
Christopher Morris, deputy head of financial planning at professional body CISI, says it would be naive to dismiss new services and argue that they will not be able to compete.
“Attracting the next generation of clients is important, to understand their needs and to work with them in a way that suits them.
“Based on my experience, the relationships that our financial planning members have with their clients are extremely strong and have been built over many years.
“However, if these ‘family’ clients are to continue to work with the firms in the long term, then the importance of adapting the client experience for the next generation will be key.”
Chloe Cheung is a features writer at FTAdviser
