The advice gap is widening as the Financial Conduct Authority’s Consumer Duty makes it increasingly harder for advisers to service more clients. But people still need advice, so what can be done?
The Lang Cat published its latest advice gap report today (3 July). It shows that just 9% of people now pay for financial advice, down from 11% in 2023.
This is despite the biggest regulatory overhaul of the financial services sector in a decade that was introduced to provide better outcomes for consumers.
The FCA introduced its Consumer Duty regulations at the end of July last year. The rules set “higher and clearer” standards of consumer protection across financial services and require firms to “put their customers’ needs first”.
In some ways, it appears it is working.
The Lang Cat’s data shows that of those who pay for advice, 91% find it helpful, with this figure rising by 14% over the past two years.
Over half (56%) said they valued the service and more than a third (37%) said taking the advice gave them peace of mind about having enough money in future.
Inevitable outcome
But worryingly, instead of improving access to suitable products and services, the findings reveal that 80% of advisers believe the regulation has made it harder for them to service clients.
Many advisers have used the Consumer Duty as an opportunity to rationalise their client numbers.
The requirement to ensure products and services are clearly targeted at consumers for whom they are most suitable for, and ensuring fair value, has created a sharper focus on wealthy consumers approaching and transitioning through retirement.
Lang Cat consulting director Mike Barrett tells Money Marketing this is an inevitable outcome of the Duty.
“One of the requirements of the Consumer Duty was for advisers to think about their target market to document who they were going to target their services at, and make sure that those services represent fair value,” he says.
“That exercise has reinvigorated the advice sector in some respects. Advisers have now got a clear focus on the clients they want to target.
“But that’s inevitably meant for clients who it’s not profitable for them to serve, or where the demand isn’t so great, they’re no longer going after.”
He suggests that, if this was not the case, it would indicate that advisers “hadn’t been following what the regulator was requiring them to do”.
But the need for good quality financial advice has not gone away. So how do we ensure more, especially “lower value” clients are receiving the help they need?
Another key focus for the FCA is its advice guidance boundary review, which aims to create a regulatory system where a range of commercially viable, high-quality models of support will be in place.
“That has to be that has to be the intention,” says Barrett. “The Consumer Duty gives the regulatory framework to ensure that the highest standards are in place. And now that framework needs to evolve to allow different types of advice and guidance to be delivered.”
The Lang Cat report indicates that advisers are broadly supportive of this regulatory piece of work, although the majority of firms will not develop new services alongside their existing “full advice” offerings.
Barrett believes this could change as the framework matures.
Different offerings
“We’re still in the consultation stage of the regulation. Maybe as things get more confirmed and move to a final policy stage, we might expect firms to make their final decisions there.”
He points out that, for traditional advisers, the demand for their advice tends to outstrip their ability to supply.
“Our research also shows that advisers are increasingly comfortable in what they’re doing and, as a result of that, they’ll be increasingly comfortable if providers and other firms start serving clients in different segments from the ones they’re targeting.”
However, he warns that if these alternative guided, simplified advice services which are likely to come in are priced at significantly lower points, consumers could be swayed away from so-called full-fat advice.
Barrett says that if consumers do not understand the difference between those offerings in terms of the overall service and value, then they may just look at the price and opt for the cheaper. “There’s a slight concern that the full advice sector might come under price pressure as a result of that.”
But he said the majority of advisers the consultancy spoke to for its research were confident in the value they provide to their clients, and do not believe this will be a problem.
“A full concierge financial planner, looking after your family and your well-being, doing long-term financial planning is a very different offering from somebody saying: ‘This is how you should invest £20,000,” says Barrett.
“But if people don’t understand those differences, if they’re not communicated clearly, the risk is that consumers will just look at the price points and use that to make their comparison.”
The key, he says, will be making sure people are aware that these are two entirely different offerings.
“The advice profession needs to get behind and support these [advice guidance boundary] changes to encourage more people to do sensible financial planning, but they also need to make sure that they clearly articulate that it’s a very different service offering to what they would be offering.”
