Over the past 10 years the adviser community has come under increasing pressure from a variety of different avenues; whether that has been the FCA in respect of continued regulation, increasing fees (in respect of the annual funding requirement) and challenges such as Consumer Duty, or from market and economic turbulence, as well as ongoing pressure upon adviser charges and margins. With an aging adviser population (over 50% of authorised or appointed representatives are over the age of 50 and that rises to 77% when you include over forty years olds) and continued consolidation taking place, it might be a surprise to learn that adviser numbers are actually slowly increasing.
However, those increases are relatively small and insufficient in the context of addressing the elephant in the room (who is now beginning to wake from its slumber). The elephant known as the ‘advice gap’. Recent statistics indicate that despite the best efforts of digital advice propositions offering automated solutions and traditional providers lowering their minimum investment thresholds, the advice gap is growing. Those in need of specialist advice and support tailored to their personal circumstances are evidently unwilling or unable to secure the services they need. At the heart of the challenge sits a number of issues:
- The availability and accessibility of advice services for those currently not receiving advice.
- The perceived cost of that advice.
- The barriers to entry that result in insufficient numbers of advisers being willing and able to broaden their proposition.
- The increasing complexity in financial services products and propositions leaving the retail market and consumers with complex financial situations and tax affairs, which simplistic solutions cannot address.
While at Simplify Consulting we are passionate about encouraging and supporting the next generation of Financial Advisers, that remains a long term ambition that will take time to realise. The challenges are here and now. The cost of living crisis and market volatility will only deter those already in the advice gap from seeking help. If the perception is that financial advice is expensive (or for the affluent), then pressure on disposable income is unlikely to result in that trend being reversed. Neither can it fall to the adviser community alone to find solutions to address these challenges; Financial Adviser firms pay more in fees, cope with an increasing regulatory and administrative burden and spend more time justifying their knowledge and experience than ever before. The help must come from elsewhere.
Which means a collective effort from providers, regulators and Government to work together to build and develop solutions that support the adviser community and consumers to remove some of the barriers to access. This can’t undermine the quality and sustainability of advice or sideline key parts of the process (e.g. suitability, attitude to risk), but equally there must be a sufficiently compelling incentive for all adviser firms to consider how they provide a broader range of services across the demographic. The Money and Pensions Advice service, despite their best efforts, cannot be the long term answer. Firmer action is required and relying upon the goodwill of adviser firms to play in places where financial returns are low is simply not going to address the problem. In the last few months, we’ve seen data suggesting that only 32% of advisers would accept clients with less than £50k to invest, down from 50% in 20191. That’s a significant reduction in such a short space of time, indicating that Advisers are feeling the margin squeeze and having to prioritise where they can get the best return.
So what are the solutions?
- Government can do more. Once it sorts itself out. If it sorts itself out. It has to help advisers and do more for investors.
- Employers can do more (though they too are feeling the burden and cost of supporting employees already). Workplace pension schemes without access to subsidised advice channels are simply not going to deliver the pensions that employees will expect to see in Retirement.
- The regulator can do more. How can it drive advisers towards offering solutions for the retail market in such a way that risk and regulatory compliance aren’t compromised? Consumer Duty has the best of intentions, but does it risk backing advisers into a corner even further and increasing their PI premiums? We need to make advice more accessible not less.
- Can providers do more? Do tech companies and providers need to get together to establish digital solutions that are cost effective in the advice gap? Solutions that blend robo-based offerings with the human touch, but that are affordable and accessible? Should financial institutions like banks being doing more here; leveraging their current account customer base to offer affordable advice based propositions to help incentivise cash savings to be moved into invested assets?
A collective effort with collaboration and incentivisation at the heart of any solution seems the only way to address the challenges faced. Leaving it up to individual groups is unlikely to achieve the outcomes desired and will continue to leave those in the most need of advice without the required support.
At Simplify we work with all stakeholders across the value chain to develop and refine solutions to meet future demand and we play an active role in industry forums to help influence direction. Come and chat to us today if you’d like to know more.
1. Schroders Advice Survey, November 2022.