Word on the web: Sound advice

It’s free for pensioners and easily accessible to the rich, but could a new UK Government review make financial advice available to everyone?

wow-financial advice1920
The UK’s HM Treasury and the Financial Conduct Authority (FCA) announced this week that they will launch a review into financial advice in time for next year’s Budget. Commentators have been discussing the options open to the Government, and what closing the so-called advice gap might mean for investors.

A step in the right directionWriting for Fundweb, Mark Sands explains that the review is “expected to generate plans to better establish a broad-based financial advice market, create a clearer regulatory environment, and a set of principles to govern the operation of advice”. 

It will also “consider the proportionality of rules, and the implications for the affordability and availability of financial advice”.

Huw Evans, Director General of the Association of British Insurers, has expressed his approval of the announcement, stating: “The new pension freedoms have highlighted just how important it is that proper advice is accessible to all, not just those who can afford it.”
 
Chris Hannant, Director General of the Association of Professional Financial Advisers, welcomes “Government recognition of the need to examine the legislative barriers to accessing affordable financial advice”, stressing the importance of helping consumers “understand that investments can never be risk-free”.
“The new pension freedoms have highlighted just how important it is that proper advice is accessible to all, not just those who can afford it”Financial advice has been under scrutiny for some time now, with reviews of other public-advice bodies already underway. The Work and Pensions Select Committee announced plans to investigate the affordability and availability of financial advice two weeks previously, and the state-backed Money Advice Service (MAS) is currently undertaking its own review process, after an independent report recommended a dramatic overhaul of its services, says Sands.

Fundweb piece

Improving access to advice“The Government is worried that only rich people and pensioners have good access to advice right now,” says Tim Wallace in The Telegraph. He explains that, as a result of the review, the Government could force banks and investment firms “to offer more financial advice for customers who are not rich enough to hire traditional financial advisers”.

Another option, says Wallace, would be to “give more resources and an increased remit to the MAS, which is funded by a levy on financial institutions but operates independently and gives out free advice,” while regulators may turn to “simplified advice, where customers could enter details of their financial circumstances… and receive automated advice in return”.

Wallace cites the FCA’s Retail Distribution Review (RDR), which he says made the process less attractive for banks, causing many to exit the market, as the root of the problem. This resulted in “a substantial gap in the advice market” that the Government’s review aims to plug.

Officials tend to disagree with this interpretation, instead arguing that “there was a problem in the market long before the RDR changes, as advice was typically only sought by those with substantial wealth”. Nevertheless, Wallace says the review shows that the Government is keen “to encourage more people with any level of financial resources to seek advice when making major decisions”.

The Telegraph opinion

Enter the robo-adviserAccording to City AM reporter Lauren Fedor, automation will be at the heart of the solution to the advice gap.

Recent changes to pension schemes, “including automatic enrolment” as well as “new pension freedom rules giving savers greater control over their portfolios” will likely drive up demand for financial advice, says Fedor.

For some experts, the solution is electronic. “The answer,” Fedor claims, “is likely to be found in new financial technologies such as automated online portfolio managers known as robo-advisers.”

Robo-advisers are already commonplace in the US, where they “face scrutiny from the Securities And Exchange Commission just like any human financial adviser”. Andrew Power of Deloitte told City AM that “well-regulated, automated systems could provide sound advice to British consumers”.

Given that consumers with smaller net worth are “effectively priced out” by the RDR programme, it remains to be seen whether robo-advisers can plug the gap that prevents individuals from accessing professional financial advice.

City AM article

Seen a blog, news story or discussion online that you think might interest CISI members? Email joanna.lewin@wardour.co.uk
Published: 07 Aug 2015
Categories:
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Tags:
  • advice
  • Finance
  • FCA

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