We must widen the general public's access to financial advice
4 min read
In her search for growth, the Chancellor is eyeing up the billions of pounds UK savers keep in cash for a rainy day.
It would be good news for the UK economy if savers felt comfortable putting more money into shares, so that they have better protection from inflation and a bigger stake in the economy. But for people to change behaviour, the regulators will need to change theirs – by widening access to financial advice from professionals in our world-leading financial services industry.
We want people to be more prosperous, better informed and more able to prepare for the inevitable highs and lows of financial life. They need an expert to help them make good decisions and yet it is surprisingly difficult to get help. That is because of the legal definition of the advice/guidance boundary.
Imagine a supermarket where, if you pay an upfront fee of several hundred pounds, you will have lifelong access to a supermarket aisle where you have a full choice of delicious, healthy foods at competitive prices. Someone will suggest some easy-to-cook, healthy recipes and wonderful meal plans.
But only eight per cent of people choose to pay the fee. Everyone else wanders around the generic aisles of the supermarket. They may see generic guidance about healthy eating. They pay much higher prices for the same goods and often choose unhealthy options. They find scammers lurking in those aisles, because anyone can set out a stall in this supermarket.
It is a slightly stretched analogy, but the quality and cost of financial advice in this country, means that we have created a two-tier marketplace where only eight per cent of the population chooses to shop and benefit from the healthy financial choices that financial services advisory firms can give.
That means 92 per cent of our constituents end up without advice. If they are lucky, they might find out that there is state-sponsored guidance such as Pension Wise and the Money and Pensions Service, but it is very generic.
There used to be a network of bank branches in this country, where people could get help from a human being, albeit one offering own-brand products. However, there have been so many bank closures that most people would not know where to start to find anyone to speak face-to-face to about savings and investment choices. There also used to be a wide network of financial advisers who would operate on a commission basis and not charge people an upfront fee.
We have asked millions more people to invest in their own pensions through auto-enrolment. We have given people pension freedoms, which means some very big decisions can be taken in your 50s, that will have long-term consequences for your financial health.
Financial services firms have a consumer duty, but they are held back by regulations from offering helpful advice from their own expertise. That could even contradict their consumer duty – if they can see their customers making poor decisions, such as leaving long-term savings in taxable, low-interest accounts, when they could perhaps be in an individual savings account or earning higher rates. They’d love to make a recommendation, but they can’t give advice.
The Financial Conduct Authority has begun to address the advice gap, and I urge them to go further and faster. With behavioural science, artificial intelligence tools and big data out there, innovators will find new ways to give consumers more customised, less generic, financial advice – something like coaching or help – at a commercially viable price.
Some consumer groups worry about allowing our financial services firms more leeway to help their customers, but doing nothing about the advice gap is also a choice. I believe consumers are being harmed much more in the generic aisles of the supermarket, where often there is no regulatory redress.
After all, making access to advice more democratic should cost taxpayers nothing. It will harness the expertise of the excellent financial services firms in the UK, and it should be able to get much more personalised advice to consumers at a lower cost.
