Re-empowering the disenfranchised: At what cost?

It comes as no surprise and, indeed, has been recognised by many, including the FCA, that the Retail Distribution Review (RDR) has left a group of consumers bereft of access to financial advisers and therefore financial advice.

It is understood that the main reason for this is because they either can’t, or won’t, pay upfront fees for the Adviser’s time. The FCA’s post RDR implementation review of last year alludes to innovative new solutions moving into this space to close the gap, by which I believe the report is referring to algorithm driven advice, the so called robo-adviser.

At this point I start to get nervous, because whilst it is becoming clear that there are some sophisticated systems out in the market that can accurately gauge a client’s attitude to risk and then marry them up with a fund or portfolio that has a risk factor which is appropriate to them it does appear that the financial planning element gets left behind. Should the first port of call be ISA or pension or even offshore investment bond? If pension, is there an existing pension elsewhere that could be topped up? Can the pension be transferred to this proposition? If so which of the two pension alternatives offer the best value? There’s more though, particularly when dealing with lower net worth clients, it may transpire that the most pressing need is not any form of investment regardless of the tax wrapper but is in fact; life, PHI or critical illness cover. How is this need uncovered in the automated “advice” process? If we were to take life cover as an example you may argue that this market is already commoditised and well served by a multitude of comparison sites, which at a level is true, if cost is the client’s over-riding factor (ignoring differing policy terms and the distinct possibility he won’t know what his true requirements are!). However, even in this reasonably mature market who or what interjects itself into the sales process to determine whether the policy type and term is the most suitable for the client or whether it should be written under trust etc.

I think the biggest danger in the confusing tangle above is the word advice it has a very specific meaning in UK Financial Services and I don’t believe any of the services above come close to delivering it. So, is there another way? Probably, although far from perfect and to some degree at odds with the general direction of the RDR, vertical integration could help to allow a proportion of the retail market access advice in a manner they understand and have historically been comfortable with. How does it work? That’s a story for another day

Note: This opinion piece was first published by Knadel Limited prior to acquisition by Catalyst Development Limited

About the author

Mark Forman

Managing consultant

I have held senior positions in distribution, product development and related change in financial institutions over the last 25 years.