It doesn’t feel like a long time since the FCA and HMT published the Financial Advice Market Review. The review giving 28 recommendations to fix what most people recognised was a market that did not work for the majority of consumers. Two years later we are now in the middle of the process of analysing the impact of the review (alongside its effective predecessor, the Retail Distribution Review). The conclusion that most commentators seem to have reached is that other than recommending the creation of a Pensions Dashboard, not much has changed. Consumers as a rule do not see the value of advice, the cost of advice makes it harder for those with small pots to justify its purchase and lingering doubts remain about the quality of the market. A recent times article pointed out that the cost of advice can vary by as much as 1000% for the same product.
The (slight) rise of the machines
The question then becomes how you move the dial on this issue. Advice is valuable and a lot of consumers would actively benefit from taking it. As with many issues in the modern economy the instinctive response for many is “just automate it”. The theory goes that clever algorithms and well trained artificial intelligence given access to enough data will be able to produce astonishingly accurate recommendations for the average consumer. However, despite the prevalence of this technology in other industries, it has not boomed in the way some predicted. In late 2018 the FCA estimated that only 3% of the population have used robo-advice services. This could be for a number of reasons, wariness of new tech, a regulatory structure that is designed for face to face advice or even the inability of current technology to read human emotions as effectively as their carbon-based equivalents. The general trend does however show that the move to automation cannot be taken for granted.
Tried and Tested
The other solution is to make it much easier for consumers to access the tried and tested model of financial advice i.e. given by a fellow human. This model works well for the consumers that use it and can provide intangible benefits like peace of mind and having a trusted contact to call when facing financial difficulties. One problem with relying on this model is that having risen for a long while adviser numbers are now dwindling. Openworks research suggests that the overall population of advisers could fall by 7% by 2022 due to the burdens of new regulations. Financial advisers are also older than the average UK citizen, with one in five advisers planning on retiring in the next five years.
When is advice actually advice?
The third potential option could be to redefine what we mean when we say advice. The current boundary between advice and guidance is a matter of constant discussion, and there is a growing consensus that it needs to be moved. Empowering providers to do more for consumers without taking on risks would be a big shift but could produce results. As ever the future is uncertain but we definitely need to have the conversation.