The FCA has just published the latest in what seems to be an endless series of reviews into the workings of the advice market post-RDR, and as usual it has whipped up a frenzy of comments from advisers mostly howling about how awful it all is.
Two things in particular seem to rouse their ire. The first is that apparently no-one can make any sense of the distinction between independent and restricted advice. Well, quite frankly, least surprising news of the century. Even the FSA’s own consumer research, published in the run-up to RDR, said quite clearly that consumers found the terms confusing. In their infuriated online comments, it’s quite clear that only a small proportion of advisers can understand it. In the really grey areas, right on the margin between the two terms, I don’t understand it. And in any case, even if anyone could understand it, it doesn’t express a difference worth bothering with. If you go to see an adviser for some investment advice, and they have to tell you they’re restricted because, I don’t know, they don’t advise on junior ISAs, why does that matter to you? Why bother making the effort to understand the most complicated distinction in the history of distinctions when it has no bearing at all on what’s going to happen to you? I could go on, but I’m starting to sound much too much like a ranting IFA for my liking.
Then the second thing which generates a great deal of indignation – although I suspect of a much more synthetic kind – is the way that the move to adviser charging has supposedly taken advice our of the affordable reach of millions of not-very-affluent consumers, leaving them blundering hopelessly around in the featureless void called the “advice gap.”
I’ve written before that I can’t see any good reason why this “gap” should be any bigger under adviser charging than it was in the old commission era. In fact, the evidence seems to be that adviser charges are very slightly higher than the old commission charges used to be – but the difference certainly isn’t big enough to have made a significant difference to millions of people.
I can only think of two reasons why the change in the way advisers get their remuneration should lead to millions of people being disadviserated, so to speak:
– Taking a proper, serious look at their business models for the very first time, advisers have realised just how unprofitable their smaller clients are and so have resigned armfuls of them;
– Or, finally, after years of trying and failing, the regulator has finally succeeded in making advisers’ charges so easily visible to the client that some, at least, are embarrassed to be seen to be taking quite as much as they are and have decided this really can’t continue.
I dunno, maybe there are some other reasons that I haven’t spotted. But in any event, my key point is this: in what part or parts of life can ordinary people with small amounts of money sensibly afford high-quality individual advice?
There may be one or two areas – health being the big one, law still despite recent cutbacks just about the other – where this is possible because the State pays. But where else? Ordinary people with small amounts of money generally can’t afford high-quality individual advice when, for example, they’re looking to redecorate their sitting-rooms, or choose a holiday destination, or pick a school for their kids, or buy a car, or find a care-home for their parents, or cut their tax bills, or change their hairstyles, or get a new phone or laptop, or anything much else where making great choices is hard and excellent advice wouyld usually help them achieve a better outcome.
In some of these and other areas, a non-individual advice industry has grown up to help fill the gap. Most readers of What Car? magazine use it to brief themselves on their options before entering any showrooms and facing up to any sales people. Paint manufacturers offer online services to help people see what their sitting rooms will look like if they do the walls in Golden Sunrise. And of course the likes of Trip Adviser can help you avoid truly disastrous holiday destination choices.
In many areas too, a combination of competition, regulation and a little bit of decent behaviour by providers means that things can’t go too badly wrong. There aren’t really any truly terrible cars any more, except perhaps the Ssanyong Rodius, and that’s so obviously terrible that you’d have to be a complete idiot to buy one.
In short, in market sector after market sector, commercial organisations of one sort or another, realising almost without a second thought that individual advice simply can’t make economic sense for most consumers, have come up with alternative kinds of support to decision-making that mean that the very large majority of people don’t finish up with anything too terrible. It only seems to be in financial services that no such support is generally available, and without expert individual advice (and all too often even with it) consumers are more or less assured of dreadful outcomes.
I could speculate on why this should be, in ways that probably wouldn’t reflect great credit on our industry. But that’s not where I’m going with this particular blog: where I’m going today is to the conclusion that we just can’t go on giving consumers so little help.
The main thing we need to do much more of is to follow the trail blazed by Nest and find ways to get consumers to much better outcomes without the need for them to decide or choose anything at all. That’s about 90% of it, and rethinking what we have to offer in this kind of way is always a whole lot of fun.
The other 10% is to keep on giving consumers choices, but to ensure they’re choices which they can easily and sensibly make. This can be good fun too.
There’s big, important and enjoyable work to be done here. But we’ll never make much progress with it while we’re still lost in the fantasy that what’s really needed is some magical new way that everyone can have individual, face-to-face advice.