AdviceBridge’s response to FCA’s Call for Input on consumer investments
As a technology firm for financial planners, AdviceBridge’s goal is to help advisers grow their business by extending their services to legacy clients and group scheme members.
Our ambition comes against a backdrop of a widening advice gap, increased regulatory fees, and a lack of personalised guidance.
We, therefore, welcomed the opportunity to respond to the Financial Conduct Authority’s (FCA) recent Call for Input on consumer investments.
To enable consumers to build a financially resilient future, we believe there needs to be a clearer regulatory framework for the delivery of personalised guidance; a framework that enables consumers to have clarity on complex financial matters.
You can read our full response below.
FCA Call for Input on consumer investments – AdviceBridge’s response
AdviceBridge, a technology firm for financial planners, welcomes this opportunity to respond to the FCA’s Call for Input on consumer investments. Our response covers questions 8, 9, 10, 11 and 19 from the Call for Input.
With research showing that less than one in ten UK adults receives financial advice, it is clear that more needs to be done to reduce the country’s widening advice gap.
The high cost of delivering regulated, holistic financial advice has meant that serving clients with more modest financial means is uneconomical for the majority of financial planners. These high costs stem from increased regulatory fees, combined with a lack of urgency in adopting new technology and automating workflows.
Without decisive action, this is likely to worsen over the next five to ten years when a significant percentage of advisers exit the market. There is a supply/demand imbalance which means advisers do not need to win smaller clients, and this will grow as the pool of regulated advisers shrinks.
Consumers seeking guidance on their finances have also struggled to access support. Investment firms and pension companies are, in general, too afraid to provide personalised guidance in case it is seen as straying into advice. The tools and guidance they provide tend to be either:
- Too general – where they provide very broad information which doesn’t help the client understand their options and choices in the context of their lives; or
- Too narrow-focused only on the products that they provide. Consumers’ financial lives are very fragmented and they need more help in understanding how the different pieces of the puzzle come together.
To ensure more consumers can build a financially resilient future, AdviceBridge would encourage the FCA to implement the following steps:
1. Develop a clearer regulatory framework for the delivery of personalised guidance
This framework would allow for the delivery of personalised guidance which provides consumers with enough information and detail to allow them to make a final decision.
The framework’s primary focus should be on the choices that consumers find especially challenging. As highlighted in the FCA’s Evaluation of the impact of the Retail Distribution Review and the Financial Advice Market Review, these predominantly revolve around investing money, setting up pensions, and deciding what to do with pension money at retirement.
The framework should allow for the delivery of recommendations regarding consumers’ capacity for investment loss, but without requiring them to take full financial advice. It should also compare the tax-efficiency of different investment options without making a specific product or provider recommendation. For example: “It would be most effective for you to save for retirement using a pension instead of an ISA.”
In the specific area of retirement pathways, consumers need to be supported with better guidance on understanding their choices and how it affects them. It is unrealistic to expect a consumer to be able to choose between an Annuity, cash lump sum or Income Drawdown by themselves.
2. Mandate the delivery of better guidance solutions in the workplace to support auto-enrolment
Employees should be given guidance on the pros and cons of consolidating their workplace pensions, along with guidance on how they can go about doing this.
Since consumers find it very difficult to translate fixed sums of money into income, they should be provided with guidance that maps their expected outcomes to their living standards and lifestyle. It is easy to miscalculate how much a lump sum could provide
3. Simplify and standardise
There are two main areas where we would encourage the FCA to introduce simplification and standardisation to the benefit of consumers:
- The difference between net pay and relief at source seems unnecessary and confusing. We recommend having one type of tax relief and ensuring that adequate support is in place to ensure consumers do not lose out.
- Standardised reporting of investment performance through the implementation of better benchmarking standards. The industry frequently relies on peer comparisons for investment returns, but this can lead to selection bias.
In conclusion, AdviceBridge believes that the most important step to improving consumer outcomes is to develop a clear framework for the delivery of personalised guidance; a framework that enables consumers to have clarity on complex financial matters.
AdviceBridge would welcome the opportunity to assist the FCA and wider industry in establishing proposals that foster innovation in the areas of financial advice and guidance.
Get in touch
To find out more about AdviceBridge’s proposition, please get in touch. Email firstname.lastname@example.org or call us on 020 3925 3850. You can also visit our website at www.advicebridge.com to book a quick demo with our friendly team.