How do we close the advice gap?
That’s the million-dollar question I’ve heard debated time and again since I joined Money Marketing.
The consensus is that artificial intelligence and the introduction of new technology will free up advisers’ time and enable them to take on and serve more clients.
But could it be the banks that hold the key to closing the gap?
After the Retail Distribution Review was introduced in 2012, most UK banks stopped offering financial advice to all but their wealthiest clients. This was mainly due to the higher risks and costs now involved.
If this means that more people can get access to financial advice, it’s not necessarily a bad thing, says Ball
Their departure created a big opportunity for Hargreaves Lansdown, St James’s Place and other wealth managers. But the tide could now be turning.
In August, HSBC announced plans to double its assets under management to £100bn and become one of the top-five wealth managers in the UK in the next five years.
“In order to fulfil this vision, we are growing our national team of wealth advisers and relationship managers at scale,” it said.
But it’s not just HSBC. Barclays and Lloyds have also made moves back into wealth management. And, according to two experts, that can only be a good thing.
Mass-affluent market
Many advice firms no longer touch anyone with less than £250,000 in assets because it is not profitable for them to do so.
So, could banks help solve the problem? Hoxton Wealth chief executive Chris Ball believes so.
We should embrace the banks with open arms if we really want to close the advice gap
“These banks are focusing on the ‘mass affluent’ market — as in people with £75,000 to £250,000 in deposits,” he says. “There’s a massive opportunity here, because this group of clients need advice nearly as much as the ultra-high-net-worth individuals do.”
NextWealth managing director Heather Hopkins agrees.
“NextWealth research shows that the average portfolio size for financial advice firms is over £400,000. There is a huge, untapped market out there,” she says.
“One of the challenges we face as a nation is that people don’t seek out advice. The more firms that shout about the value and availability of advice, the more people will seek it out.”
The resurgence of the banks may put some wealth managers’ noses out of joint, but Hopkins says they needn’t worry.
Many advice firms no longer touch anyone with less than £250,000 in assets
“Demand for advice far outstrips supply, so I don’t see banks competing with traditional wealth managers.”
Ball agrees that banks do not pose a threat.
“If it means that more people can get access to financial advice because the banks make it cheaper to do so, I don’t necessarily see that as a bad thing.
“As a profession, we should really focus on the positives of what we are doing and not the negatives of what the banks are doing.”
Independence
Ball thinks the banks will have tied products, and “a lot of it will be around product sales rather than giving proper, holistic financial planning”.
The resurgence of the banks may put some wealth managers’ noses out of joint, but Hopkins says they needn’t worry
Therefore, his message to wealth managers is simple: “Keep doing what you’re doing — giving great, independent financial advice. That independence bit, I think, will be key.”
The Lang Cat consulting director Mike Barrett agrees.
“For these types of services, advice is rarely the product. It’s about the banks wanting to sell more of their own funds.
“As a consequence, the vast majority of the advice profession should have nothing to fear from these offerings.”
When I spoke to the FCA’s Nick Hulme, head of advisers, wealth and pensions, he told me the regulator was open to banks entering the sector.
“Financial advisers can do their bit — they are already active in the market and very knowledgeable.
It’s not just HSBC — Barclays and Lloyds have also made moves back into wealth management
“If there are other players that are going to come in to help reduce that advice gap, which this country really needs, then we’re agnostic to who that is.”
Hulme added that the regulator was “absolutely on board and behind anyone with the right intentions and motives”.
As for an old friend we haven’t seen for a while, we should embrace the banks with open arms if we really want to close the advice gap.
Dan Cooper is news editor
This article featured in the November 2024 edition of Money Marketing.
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