8 December 2015
There is an argument to say that advisers and providers were already doing sterling work on the Financial Advice Market Review before it existed.
Certainly the team at Space have spent a great deal of time and thought working with our clients on this type of challenge – if not quite in the exact terms presented by the Government. In the last few years, in particular, we have been working on projects for a range of clients that could be broadly described as harnessing the latest web technology and the latest ideas on user journeys and story-telling to help our clients design better guidance, information and advice for their customers.
Some of it may fall into the category of Robo-Advice or indeed the slightly less discussed cyborg-advice, where technology streamlines the advice process but a person is always involved. Yet arguably even more importantly, you could say our goal has been to help our clients help their clients and customers make better decisions – not far from the FAMR’s terms of reference.
The main driver recently, though by no means the only one, has been the pension freedoms, which have presented people coming up to retirement with a much wider set of choices about what to do with their money and, in the process, generated much greater demand for help and advice.
Of course as a specialist financial services agency, regulation influences a huge amount of what we do and now it could be changing dramatically because of the FAMR. Policymakers are convinced that not enough people are being reached and helped with their decisions and almost all the statistics bear this out.
A previous regulatory paper from the FCA – Retail investment advice: Clarifying the boundaries and exploring the barriers to market development – outlined the FCA’s view of the range of advice and help available including simplified and limited advice but without providing anything that financial firms felt was a go-ahead to reach more people. The multiple advice definitions contained in the paper are still coming in for criticism as this very recent Money Marketing article demonstrates.
Actually, we think the paper was useful at least in terms of establishing the regulator’s perspective on what the existing rules would allow. It gave clarity after a fashion, though not to the extent that anyone would set up a new advice or guidance business who wasn’t going to anyway.
Of course, at Space, we don’t see it as particularly our role to try and influence the shape of the FAMR or certainly not in terms of demanding specific changes.
That is for advisers, providers, professional bodies and maybe even new entrants. But from our work in recent years, we would make two observations and one suggestion if we may.
Are we changing what guidance is allowed to do or carving out a new advice channel?
The first observation is that when it comes to enabling advisers, providers and perhaps platforms to help their clients, we believe one key decision will boil down to a choice of either adjusting the definition of guidance or creating/better defining a new advice channel.
That means either allowing guidance to guide more firmly without becoming advice – or creating a form of advice perhaps an adjusted and more clearly defined version of the current limited or simplified advice with a lighter regulatory load attached. We can certainly design things around either decision, though it is for others to argue the pros and cons.
The biggest challenge may be reaching the completely disengaged
Our second observation is that anyone attempting to narrow the advice gap significantly needs to understand that there are very different groups of people involved and a wide spectrum of attitudes. For people who take a reasonable interest in their money but have been put off by the perceived high cost of the advice, it may be sufficient to smooth the path towards guidance and/or some form of more limited advice.
The middle group is likely to be made of up of consumers who need a significant level of prompting to seek help but may do so particularly as they get closer to retirement. Yet it is when you get to the disengaged consumer that things get really challenging. You get into the realm of trying to change societal norms and that is a huge undertaking.
A recent survey by Saga Investment Services suggested that 3.4 million of the over 50s hadn’t heard of the pension freedoms.
Reaching many of those people is a challenge of a different order and any shift in regulations is only one part of any solution. We may need to deploy the full advertising and marketing toolkit while some helpful auto-enrolment style nudges from the government wouldn’t hurt either.
Design the FAMR for the people we are trying to help, but also with the people we are trying to help
This leads us to our final suggestion. We have carried out a vast number of detailed customer focus groups in recent years to determine what makes people tick – or different people tick differently – and why they make the decisions they do.
A really successful FAMR process would be one that creates a framework which protects consumers from bad decisions and maintains financial advice as the gold standard. Yet it would also be one that is designed around clients and customers and their goals and needs. The only way to do that is to make sure you design the FAMR around real people and their needs and the best way to do that is to sit them down and ask them. As ever, we would love to hear your views.
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