When re-reading in Money Marketing that Benchmark Capital is trialling a simplified advice offering, I was struck by a commentator’s thought-provoking response that this concept is actually an oxymoron.
Yes, in an ideal world, everyone could access full-fat holistic advice. However, there simply aren’t enough advisers to service millions more savers, so we must look at other areas, such as digital or hybrid advice, to accommodate the growing market.
As the Financial Conduct Authority has reported, adviser numbers have increased by less than 2% this year compared to the previous. Equally important, it’s not cost-effective for advice firms to service people with low investible assets unless they charge a high fixed fee, which is not tenable for many investors.
More people need true financial advice (rather than guidance) that comes with a personalised recommendation
And not everyone needs full holistic advice in any case when their objectives are simpler. This is where customer-led self-service advice journeys as part of a hybrid offering come in.
More people need true financial advice (rather than guidance) that comes with a personalised recommendation. This is necessary to ensure good outcomes. I’m thinking of those who, at retirement, do not obtain any advice and end up drawing down unsustainable amounts from their investments and pensions.
Then there are some younger investors who take too much risk with crypto and foreign currencies, for example, as warned by the regulator. Others are harmed by holding too much cash, according to the FCA.
FCA and FOS need to be crystal clear about minimum standards and qualifications for providing simplified advice
So, what do we do about this? Introducing digital and hybrid advice journeys to cater for more simple advice cases, or to reduce the admin for advisers for more complex cases, would help to reduce the cost of providing advice – resulting in less wealthy people accessing advice at a lower cost. Doing so would free up advisers to spend more time with their clients on areas where they add most value.
If we were to just look at ‘simplified advice’ as the only remedy, some obstacles would need to be removed for this to be feasible.
The FCA and Financial Ombudsman Service would need to be crystal clear about the minimum standards and qualifications required for those providing this type of simplified advice.
I accept the regulator has rowed back on its previous announcements about simplified advice and is now focusing on reviewing the advice/guidance boundary. But digital and hybrid advice can help bridge the gap today.
We’re used to this choice in many aspects of our lives, and I see no good reason we can’t cast advice in the same light
Let’s illuminate this with an analogy most of us are familiar with. Think about the purchase of white goods for the home. Buying a washing machine or a fridge in a physical store is likely to cost more than an online-only retailer. This is mostly owing to the additional costs incurred by a high street outfit.
Yet the cheaper online purchase is unlikely to come with the same level of service, such as advice on the various types of machines on the market, being able to look at the product in person, ‘feeling’ the quality of the manufacture, and so forth.
These additional benefits in the high street come at a cost to the store operator – staff wages, property rents/rates, training costs and so on.
Physical stores and online sellers have a place in the market and work well in different situations. We’re used to this choice in many aspects of our lives, and I see no good reason we can’t cast advice in the same light, subject to proper guardrails in keeping with Consumer Duty.
Although simplified advice may go some way in reducing the cost of providing advice, digital or hybrid advice is here now, ready to work alongside traditional advice, to help lower the cost of giving advice and increase access to advice for many more individuals.
Chet Velani is managing director at EV
