The Financial Advice Market Review was announced on 3 August 2015; its remit is to examine how financial advice could work better for consumers, building on the Government’s pension freedom reforms and improving access to impartial guidance.
In particular, the review will focus on the advice gap for those with less complex financial requirements but who do not have significant wealth and/or the ability to pay for bespoke advice. In addition, the review will also consider ways of encouraging firms to create innovative products to meet consumer needs.
The process is one of consultation with the industry via a document being produced in autumn 2015, with the consultation exercise closing by the end of 2015 with a view to producing proposals ahead of the Budget in 2016.
Embracing the change
From our profession’s perspective, it has long been acknowledged there is an advice gap, with a significant proportion of the population not having their financial planning needs met. There has been much debate in recent years as to how this advice gap has come to be, ranging from a natural consequence of the Retail Distribution Review to banks exiting this market or moving their proposition upmarket. Whatever the root cause, consumers as well as the wealth management community should embrace this initiative. That said, highlighting the problem is always the easy part. Coming up with a workable and practical solution is going to be a significant challenge and will require some out-of-the-box thinking and radical new ideas.
Technology will need to play a key part in providing simple and effective advice models for consumers. Robo-advisers may well be one of the ways the wealth management industry can bridge the advice gap and open up new avenues of business.
Another option is for consumers to have greater access to low-cost or free guidance from providers, with the profession able to provide bespoke advice when required.
However, in isolation, technological advances will not be sufficient. There will also need to be fundamental changes to the legal and regulatory aspects of giving advice. In other words, if there is going to be a downward pressure on fees being charged, then the risk of doing business must be commensurately limited to encourage firms to provide advice in the first place. In particular, the lack of a long-stop for advisers is a key issue that needs to be addressed.
Also, it should be noted that not all consumers need or have a requirement for advice on every financial decision being made. For example, at key stages of life, such as approaching retirement, you would expect consumers to benefit from full financial planning advice; however, for more transactional work, non-advised channels could be appropriate for some.
