Your IndustryJan 28 2021

Value of advice must be made clearer

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Value of advice must be made clearer

Worries about the Brexit transition plus the pandemic meant the FTSE 100 suffered its worst year since the financial crash of 2008, dropping 14.3 per cent.

In the US it was different, with Nasdaq surging 42 per cent and the S&P 500 gaining 15 per cent. Nasdaq – dominated by technology companies – highlighted one of the themes of the year, with the increasing use of tech to combat Covid-19 accelerating industry developments that were already underway.

The past 12 months has seen more progress on the use of technology than in the past 12 years

Forecasting the next phase of the pandemic is not going to be any easier, but you would be justified in concluding that some of the forced developments of last year – such as the increased acceptance of technology by advisers and clients – will benefit the industry in the months ahead.

The hope is that the experience of the past year fighting the pandemic may provide some help in addressing longer-term issues.

The past 12 months, for instance, has seen more progress on the use of technology than in the past 12 years, with advisers and providers rapidly adopting digital processes for the acceptance of new business.

The hope must be that once customers are happy to conduct some business digitally, they will be willing to consider innovations that in the past would have seemed too difficult.

People are facing unprecedented financial challenges because of Covid-19, with many now having questions or concerns about their own financial situation and will be unsure where or who to turn to for help.

The worried wealthy need help

The wealth marketplace is served by a very flexible industry. The need for help and support for the worried wealthy in making the right investment decisions is growing all the time and was an issue long before the pandemic.

Increasingly people are taking decisions on pension funds as workplace auto-enrolment means more are saving for retirement. Savers also have to take decisions on investing lump sums.

They want support when buying investment products but do not necessarily need to pay for advice, and in many cases cannot afford to. Financial providers want to sell them products but cannot afford to be left exposed to the possibility of regulatory action or compensation claims if something goes wrong.

Being able to offer guided alternatives to full advice would seem to be a sensible solution to the growing demand, but for that to work there needs to be a recognition that customers who do not receive full advice must take some responsibility for their decision.

To help them we should make it easier to invest and that would mean, for example, simplified fact finds for lower risk products. It would mean low cost, simple charging structures with no catches.  

Charges and performance should be clearly identified. Basic risk-rated products should be available and should make clear the risks of doing nothing or having everything held in cash.

Access and education

Consumers have a massive range of choice when it comes to investment products, with multiple access points driven by the expansion of technology, but there are significant issues that need to be addressed to ensure better consumer outcomes.

Broadening access to the market and opening up guidance to more products creates the opportunity for an expanded market, which will enable providers to effectively offer solutions in a cost-effective way while also building a market that will need full advice in due course.

Increased access also responds to the changing consumption habits of the wider population in terms of digital solutions that were not available under previous attempts to broaden access.

Consumer knowledge is generally low when it comes to understanding investment options and that often leads to inertia. Increasing financial education is a significant way to improve the financial wellbeing of individuals and their families while reinforcing the benefits of investing.

Financial education should also be continuous; the 'bank of mum and dad', for instance, needs help passing on their wealth to families.

ESG can help do good

Responsible investing and the integration of environmental, social and governance factors into investment decisions has taken on greater energy over the past year, partly due to the pandemic and the so-called 'Great Reset'. In many cases, ESG strategies outperform their non-sustainable benchmarks.

Advisers are now faced with the task of educating themselves on responsible investing and learning about their client’s ESG values, while also facing new regulations that will require ESG to form part of the client’s sustainability assessment. Again, this presents a significant opportunity.

Those advisers focused on ESG can generate a richer dialogue with their clients around values.

In doing so they can also demonstrate that in many instances taking an ESG approach can enhance investment returns. That in turn demonstrates the importance of the role of the adviser, in an area of growing importance to investors.

A recent PwC report predicts that more than 50 per cent of European funds will be in ESG assets by 2025, highlighting the view that ESG investing will become the norm.

Protection is vital

When consumers make mistakes it is due to a range of issues, from reckless caution where they focus on what are perceived as safe products that produce inferior returns, through to being simply reckless and investing in offers from too-good-to-be-true scammers and unregulated products.

Based on the key drivers that customers look for – ease, simplicity, transparency, and speed on product – consumer protection should reflect this.

Protection from scams and mis-selling is ultimately best delivered by increased access to qualified advisers and by companies that sell directly to consumers, providing evidence of their competence and capability. We strongly support the ‘polluter pays’ principle and believe that the rules around investor exemptions require review.

Regulated companies that cause customers to lose money should bear the burden.

The value of advice

Now more than ever the industry needs to work together to promote the value of advice to the wider population. There are many helpful online tools such as The Pension Advisory Service, the Money Advice Service and Unbiased.co.uk.

However, much more needs to be done by the industry and the government to help people access the financial advice they both need and deserve.

At Openwork, expanding access to face-to-face financial advice is a strategic priority and we continue to invest in recruitment, which last year saw more than 100 advisers join the network, as well as the expansion of our award-winning Academy – real evidence of our partnership approach.

An important part of the recruitment process is helping to make the industry more diverse – more female advisers and more younger recruits – as the key to attracting more customers who will value advice is to have advisers who are more like them.

It is crucial that we make advice as personal as it can be and we believe this will be an important part of this.

The Covid-19 pandemic currently dominates everything, but it will pass, and it is providing opportunities to re-shape the consumer investment market for the better.

The value of advice is clear to the industry, but it needs to be made clearer to consumers and easier to access, which is where we will be focusing, both now and into the future.

Mike Morrow is chief commercial officer at Openwork