A recent survey by investment portal Boring Money has identified the scale of the financial ‘advice gap’ in the UK and its findings suggest that the answer to bridging it may not be found solely in developments in the fintech sector.
The survey found that just 8% – 4.1 million adults in the UK – had an ongoing relationship with a financial adviser, whilst 29% had been in contact with an adviser in the past.
It appears that the reduction in the number of advisers post-RDR has exacerbated the problem; with only 31,000 remaining there is a dearth of advisers but there is also a general unwillingness to pay for financial advice – regardless of circumstances.
This is the space that many predict will be filled by automated advice platforms, or robo-advisers, but the survey also identified that the solution may not be as simple as turning tech-savvy ‘Millennials’ on to savings and investment.
RDR sought to make good financial advice universally available but the advice gap is a product of a perfect storm whereby clients were unwilling to pay for advice that had previously been seen as free when fees replaced commissions, and advisers were no longer prepared to service clients with less than a certain amount of investable assets – often as much as £100k.
The survey revealed that 30% of respondents would not be prepared to pay anything for financial advice, with just 8% prepared to pay more than £100 an hour for advice.
Neither was the propensity to pay apparently related to the ability so to do; 33% of households with £100,000 – £150,000 of savings and investments said they would pay no more than £50 an hour for advice with another 33% not prepared to pay anything and just 7% prepared to pay £100 per hour.
There is little doubt that the shift toward DIY investing will have had an impact as an increasing number of those motivated to avoid punitive charges, emboldened by education and empowered by technology have taken control of their financial futures.
The results debunked the lazy supposition that those most able to pay would be the most willing; it also challenged the hypothesis that those brought up to venerate the mouse rather than seek to exterminate it, would naturally gravitate toward the new generation of savings and investment platforms.
More than a quarter of households thought that free online tools and calculators were the most likely alternative to paid financial advice, with almost one third of the wealthiest respondents looking to online comparison sites.
Perhaps the challenge to advisers is for them to definitively demonstrate the value of the advice they dispense in good old fashioned LSD.
Rather than being seen as the panacea for Millennials as they wrestle with tuition fees, property prices and reducing support from the State, robo-advice achieved far higher approval ratings among the wealthier and elder surveyed.
robo-advice achieved far higher approval ratings among the wealthier and elder surveyed
Overall, 18% said that they believed that robo-advice would provide the alternative to traditional financial advice, but that rose to 40% of Britain’s wealthiest households; perhaps surprisingly, support for robo-advice was higher among those between 35 and 44 years olds than it was in the 25-34 bracket.
If this plays out, it could be that those currently paying for advice may choose to back low cost, automated platforms in the future rather than gambling on finding the Alpha Adviser.
It may well be that in future investors embrace a combination of strategies as online technology delivers information and education that was once the preserve of the men with red braces, and access to investments around the world at the click of a button.
Some wealth managers offer the facility to split portfolios so that the client can manage a portion with the remainder being advised; access to occasional or one-off advice could be an attractive adjunct to an execution only broking account.
Flexible products like the Lifetime ISA will undoubtedly have a role to play and early indications are that it will prove to be a viable alternative to traditional pension products; the attractiveness of what is being dubbed the LISA can only increase as it is further enhanced.
automated advice platforms will play an important role in the savings and investing landscape of those currently denied access to advice
It is still early days for robo-advice, but there can be little doubt that automated advice platforms will play an important role in the savings and investing landscape of those currently denied access to advice.
The FCA is determined to encourage a two-tiered approach to advice, with the precise definition of what constitutes advice one of the early battlegrounds.
As technology enables the platforms to move away from some of the rather dated methodologies that underpin them and towards genuine artificial intelligence, the hope is that more and more people will take personal control of their finances to give them the freedom and choice that comes with it, but also to relieve the future burden on the state.
A challenge for the robo-advisors is to find a pricing model that allows them to profitably address those that may be entering the savings and investment fray for the first time, but who have relatively modest amounts to invest; in the States, a number of platforms are finding that the cost of client acquisition in an increasingly competitive sector does not justify the revenues that can be achieved.
The technology that powers the automated advice platforms can be deployed in a range of ways and it may well be that robo-advice ends up supporting a whole new breed of financial advisers; their challenge will be to get the GBP to engage with the concept of taking financial advice in the first place – however it is served up.