The financial advice landscape is evolving, driven by a policy of auto-enrolment that has turned the great majority of the UK workforce into investors.
The pressure to make investment support more accessible to a broader audience is only likely to grow and, despite the challenges thrown up by the failure of robo-advice, technology still lies at the heart of most of the proposed solutions.
Recognising the changing landscape, the Financial Conduct Authority has introduced its advice guidance boundary proposals. Its targeted support proposals, in particular, are designed to leverage emerging technologies to create innovative ‘people like you’ delivery models.
This level of personalisation, previously only available through expensive advisory services, could be made more widely accessible, democratising financial advice
These models aim to enhance financial guidance by using data-driven approaches that reflect the user’s financial peers. However, while these tools can encourage more informed consumer decision-making, there is considerable concern they will fall short when addressing major financial decisions such as planning for retirement.
Our research into the FCA proposals earlier this year showed 70% of participants believed targeted support could address some needs of investors aged 55-70, but a more substantial 76% agreed simplified advice was also crucial at this stage of life.
This perspective was even more acute among banks and personal savings providers, where 83% saw simplified advice as essential for this demographic, compared to just 57% who felt the same about targeted support.
Put simply, simplified advice offers a clearer path for consumers nearing retirement. These consumers are likely to expect personalised recommendations as the culmination of decision-making journeys they may have started in the targeted support space.
Importantly, this approach is not the robo-advice of the past
The role of technology, particularly automation and artificial intelligence (AI), is seen as crucial in reshaping how mass-market advice is delivered. For institutions like banks and life companies, which possess extensive customer data, the integration of AI could transform raw data into actionable, personalised insights, enabling enhanced engagement with the products and services concerned.
Machine learning algorithms could play a critical role here, enabling the customisation of recommendations that align with each consumer’s unique financial goals. This level of personalisation, previously only available through expensive advisory services, could be made more widely accessible, democratising financial advice.
Importantly, this approach is not the robo-advice of the past – it is focused on integrating these technologies into traditional advisory processes, rather than relying solely on automated systems. This not only streamlines the adviser’s workload but also ensures that essential human interaction remains a core component of the advice process.
Generative AI solutions could enable the upskilling of junior advisers, ringfencing the universe they access to in-house advice policy documents. Something especially relevant to banks as they consider re-entry into the pensions advice market.
90% of providers we spoke to back a ‘hybrid’ advice model, combining human support with digital systems, as the main delivery approach for simplified advice
It could also reduce the need for advisers to hold high-level qualifications, as these can be incorporated into the AI systems (although how we regulate such an AI-solution and how output can be effectively governed, remains unclear).
90% of providers we spoke to back a ‘hybrid’ advice model, combining human support with digital systems, as the main delivery approach for simplified advice. Many noted it has the potential to massively increase the efficiency of delivering the personalised recommendations essential for fostering client trust and reducing dropouts.
The path to closing the advice gap is complex and requires ongoing collaboration among industry stakeholders, including regulators and financial institutions. The benefits of such advancements extend beyond individual consumers, potentially revitalising the entire financial ecosystem.
As the integration of technology into financial advice services progresses, every consumer stands to gain access to expert guidance, customised to their personal financial situation.
This integrated approach promises not only to bridge the existing advice gap but also to enhance the uptake of financial services, fostering greater financial inclusion and resilience across diverse target markets of consumers. As we move forward, the fusion of human expertise and advanced technology will be critical in shaping a more inclusive and responsive financial advice sector.
Robert Holford is head of research and regulation at Altus Consulting
