14 March 2016

Financial Times: FCA proposes reforms to close ‘advice gap’

The UK Treasury and the Financial Conduct Authority want to open up and automate the financial advice industry after seeing evidence that a swath of Britain is worryingly ignorant about money.

In their review of the financial advice market, the Treasury and FCA said they would consult over changing the definition of “financial advice” to make it easier for high street banks and advisers to offer cheaper and simpler services, including automated, or “robo-advice”, that uses algorithms to offer general guidance and pick out suitable investments.

“Full-fat human advice is becoming a game for the more affluent,” said Mike Rogers, chief executive of Liverpool Victoria, the insurer. “There is a lot of evidence that people are becoming more comfortable interacting with a computer for financial advice. They do not have to feel embarrassed. It is the only way that advice will be affordable for all.”

Mark Garnier, a Conservative MP who sits on the Treasury committee, said: “As we move into an increasingly digital age, it is inevitable that the traditional financial adviser will be available in a robotic form. This is not a bad thing as it will make standardised advice available to everyone cheaply.”

The shake-up of the industry comes after the government gave over-55s the right to withdraw their pension pot as a lump sum, but banned independent financial advisers from offering apparently “free” advice that was funded by commissions from financial product providers.

As a result, fewer and fewer people have access to affordable financial advice, at a time when more and more people need it.

According to the FCA, two-thirds of retail financial products are currently purchased without advice, while many people with less than £100,000 to invest are going it alone when choosing pensions, investments and retirement income products.

The Pensions Policy Institute said the decision about accessing pension pots was one of the “most complex” that people will have to make, because it requires knowledge of the economy and market risks. Despite this, less than a third of people are currently taking advice before making the move.

The high cost of advice is blamed by many for the “advice gap”, with the FCA finding that more than 85 per cent of investors were not willing to pay more than £200 for online advice. At the same time, advisers are unwilling to advise those with limited assets, with 69 per cent reporting they had turned away potential clients in the past year.

There is now “an opportunity to reshape the landscape for financial advice so that UK consumers are much better served than they are today”, said Ashok Vaswani, chief executive of Barclays UK, the bank’s retail division. [...]

© Financial Times