Greetings. Hope you are all well. Mike here, keeping the TCWU wheel turning for another week.
Big news from the FCA today, with the release of the snappily titled, “Broadening access to financial advice for mainstream investments” consultation paper. This is something that has been trailed for a while now, with Money Marketing reporting on the first stages of the work earlier this year. Today’s paper is the first step towards a wider review of the advice/guidance boundary, however at this stage we are talking about targeting the c 9.7m consumers who have over £10,000 in investable assets, and hold these mostly or entirely in cash.
The consultation paper was very helpfully circulated under embargo yesterday, so having read it, discussed it with colleagues, pondered it some more during the boring first half, and then slept on it, first impressions are not good. This isn’t (as the paper suggests) about “broadening access to financial advice”, it is about selling. Advice isn’t the product here; stocks and shares ISAs are.
First up, you have to question whether this target market (10k+ cash customers) is quite the problem it was when first identified in 2020. We were in a different world then in terms of cash interest rates and equity/bond returns. A short (and crazy) period of time to make any sort of judgement, yes, but still highlights the challenge of creating an investment range for what are likely to be risk adverse first-time investors. 80/20 bond/equity for low-risk investors anyone?
A new definition of “core investment advice” is proposed, with a lower bar in terms of adviser (but not supervisor) qualifications. Nothing wrong with this, and you can see how this might create a natural career path for individuals to cut their teeth in core investment advice before moving to the holistic advice world. However, the wider problem remains – this is about making it easier for providers to sell ISAs and paints a false picture of what advice actually represents.
Good advice can transform financial wellbeing, both for individuals and their wider family. Advisers will help these individuals navigate the impenetrable complexity that financial services insist on imposing on everyone and will recommend the best way to deploy your spare resources. This will often involve choices, decisions (some irreversible) and trade-offs between different products. It is easy to imagine scenarios where these individuals, with £10k+ in cash might be better off investing into a pension, a lifetime ISA, employer save as you earn scheme, or especially by taking out life insurance. All of this is explicitly excluded – as a core investment adviser I can tell you what funds to invest in, and not a lot else.
This is, of course, not the first time that the issue of the advice gap has been discussed, and the biggest supply side challenge still remains – how to make it commercially viable for providers. As the FCA highlights within today’s paper, robo advisers have shown just how difficult this is, and by pegging this development to stocks and shares ISAs it is hard to see how the numbers can stack up. Back of a fag packet….3% initial on a £20k ISA = £600 advice fee revenue. Say, £35k pa to employ a core investment adviser, with a QCF4 qualified supervisor on £50k, plus whatever business costs you want to factor in. That’s a lot of ISAs to sell to break even, and a lot of hard-edged sales behaviour as opposed to planning behaviour to make it happen. It is hard to see how anyone but the largest providers, who will inevitably be selling their own funds, will be able to make this work.
At the lang cat we’ve conducted research on the advice gap for several years. You can see the most recent iteration (conducted on behalf of Open Money) here. When we asked over 2,000 consumers what would convince them to pay for advice, concerns about value for money and trust are the two biggest barriers. Consumers are unable to see the value in advice, and simply don’t trust financial services as a whole. Whilst today’s paper might create some useful building blocks for the wider review, it is hard to see how in isolation this will do anything to address the main drivers behind the advice gap.
IT’S COMING HOME… LINKS ARE COMING HOME
- #langcatlive tickets are flying out the door. Join us in London on February 9th. You can get your tickets here, and if you work in an advice firm it will cost you precisely zero pounds…
- Big Tom’s latest podcat is with one of the nicest men in pensions – Steven Cameron (Aegon). Listen to them chatting Autumn Statement, state pension, care costs, ministerial priorities & loads of other bits here.
- We let the boss man out a few weeks ago, and he ended up at the PFS conference talking about Consumer Duty and Suitability. You can read a version of his talk edited for swears here.
- And finally, the musical link this week comes from Sault, who casually and without notice dropped 5 (five) new albums all for free earlier this month. This is Stronger, from the Earth album, featuring vocals from the incredible Cleo Sol…
See you next time
Mike
