With a mooted 30 million UK adults beyond the scope of full advice (consumers with less than £257 a month to save can’t be economically served by full advice) and only 18 months to go until final RDR implementation the industry got together to ask “ where on earth are we?”. After a spot of good old show and tell from the ABI, KPMG, the FSA and several providers, here’s the consensus…
3. No nearer a solution?
Advisers and providers have complained that a lack of guidance from the
FSA has held back attempts to develop simplified advice services.
The lack of input from the FSA was a ‘dereliction of duty’, said Skandia
chief executive Peter Mann.
There is widespread industry complaint that the lack of clarity means it is
near impossible to start developing a simplified advice process.
The ABI has developed a proposal for a technology-based simplified advice
service, which could serve the protection, ISA, annuity and group personal
pension needs of the masses.
Scottish Widows is one of four providers running an ABI simplified advice
pilot but a big barrier to simplified advice is the level four qualifications
requirement, which is making it an un-commercial venture.
So with 18 months and counting, how much closer
to a solution are we to a 30m (potential un-
advised) problem?
4. RDR
No turning back
“ After three and a half years of discussion and
“
consultation, we are finally nearing the end of the Retail
Distribution Review journey.
Following the publication of the advisers have until 31 December
2012 to implement these new rules in their businesses.
The new RDR rules have been developed by the FSA to
increase consumer confidence in financial advice by removing the
potential for commission bias and increasing the professionalism
of financial advisers.
5. RDR
But not, yet, quite hitting the mark
However, the new rules are widely
predicted to reduce the number of financial
advisers and increase the cost of advice.
Evidence of advisers shifting their
business models further up market, where
advice is valued and affordable, can
already be seen.
This will increase and prevent a large
number of consumers from accessing
advice.
6. Accessing advice
Consumer preference
Consumers prefer to access advice through a variety of channels rather
than relying solely on one source.
Half of respondents who had sought
financial advice used the internet.
Fifty-two percent used a financial
adviser, with an independent adviser
more popular than an adviser linked
to a product provider.
Consumers who sought professional
financial advice often supplemented
this with their own research -
consumers prefer to access
information from sources which they
believe are independent and
impartial, like media and internet
‘best-buy’ tables, rather than using
public sources like the Citizen’s
Advice Bureau.
Source: Q3 2009 ABI savings and protection survey
8. Cost of advice
By product
Given the comprehensive nature of full advice,
it is unsurprising that the time taken to deliver
“ The time taken to deliver advice does vary by
channel, with banks and building societies this is typically nearly eight hours.
typically taking less time to provide advice than This is therefore reflected in the cost.
“
independent financial advisers, primarily due to
the nature of their service. On average, full advice typically costs £670 in
total. Following the implementation of the RDR,
this cost is widely expected to increase.
“ The time taken also varies
depending on whether the client
is a new or an existing customer
“
of the firm and by the type of
product recommended.
Source: CRA calculations May 2010
12. Simplified advice
Consumer targets
The ABI has identified three groups of consumers who could
benefit from a simplified advice process:
1 2 3
Consumers who Consumers who are Consumers who are
recognise the need to already unable to access currently served by
save and invest after existing advice services. existing advice services,
using Money Made Clear, but who will be unable to
but require further afford or will be unwilling
advice to determine to pay for this following
which product meets their the introduction of the
needs. RDR.
13. Tenets of simplified advice
Central to offering simplified advice at a price which
more consumers can afford, is the process driven
nature of the service.
A simplified advice process is automated and IT
driven which the consumer can access via the
internet unaided, over the phone or face-to-face
where a facilitator guides the consumer through the
pre-determined questions.
The whole interaction should take no longer than
30-45 minutes, significantly less than 7 hours 40
minutes typically needed for full advice.
14. Simplified advice
Four barriers
FSA Judgment FOS Judgment QCF 4 Charging-based
uncertainty uncertainty Requirement remuneration
Barrier Detail
FSA Judgment uncertainty Uncertainty around how this will be judged, especially by FSA
supervisors – the industry requires FSA general guidance to provide
clarity.
FOS Judgment uncertainty Uncertainty around how the Financial Ombudsman Service will judge
any complaints – industry requires clarity that any complaints would be
judged based on the limitations as explained to the consumer.
QCF 4 adviser qualification requirement Current FSA proposals to require an individual facilitating the process to
hold a QCF 4 qualification. May be an inappropriately high qualification
level, as an individual facilitating a simplified advice process will be
restricted to guiding the consumer through the pre-determined process.
Charging-based remuneration for Current FSA proposals require simplified advice to operate an Adviser
simplified advice model Charging model. This may discourage many consumers in the target
audience and create consumer confusion.
15. Simplified advice
Overcoming barriers
FSA director of conduct policy Sheila Nicoll said that where
simplified advice is delivered via an automated service, QCF level
four may not be required:
When asked whether the FSA accepts that a
Last year, in CP09/18, we suggested that
simplified advice process will deliver good, but not
[QCF level four] standards should apply necessarily the best outcomes, Nicoll said
equally to those giving simplified advice.
The responses to this were divided, and we
can see that there might be an argument in
terms of proportionality. There is also a I have a lot of sympathy with that view, but
question of how the qualification we have to decide what is meant by ’good’
requirements might apply in a simplified – I have no particular objections to that
advice process that is fully automated. statement, however
17. So what next?
“ Although the advice landscape will undoubtedly
change in the run up to the introduction of the FSA’s new
RDR rules in 2012, consumer access to suitable types of
advice is an issue that is predicted to grow as commission
“
is replaced by transparent advice charges.
Danger of falling short Working closer & harder
As it stands, the FSA is in danger of It is therefore vital that the industry works
failing to fulfill one of their objectives for closely with the regulator and the
the RDR – enabling more consumers to Ombudsman Service to ensure
have their needs and wants addressed. consumers can access suitable,
affordable financial advice.
Source: UK Structured Products Association
18. So what next?
Views from the market
“ The better off will pay for advice but the rest
will need a value proposition. Cost reductions and “ 5-% are not willing to pay for advice. The 50%
that are most are only prepared to pay £50 or
tax incentives (unlikely!) will help. Key is less! Ongoing f2f is going to be seriously
“
consistency and greater integration across the challenges. How can we expect to deliver
“
industry and public sector anything more than remote / Ltd advice?.
Adam Phillips, Financial Services Adam Phillips, Financial Services
Consumer Panel
Consumer Panel
“ The simplified market is
more likely to provide the right “ There’s no doubt that the
economic wake-up call has opened
solutions. But not necessarily a window but how closer are we
the best for which you will
“ “
today to stepping through with
always need Face-to-face. workable solutions?.
Peter Jolly, Assistant Robert Kerr, Scottish
Director ABI widows
“ There is certainly a market.
We’ve got the name of that
solution – ‘Simplified Advice’ –
“
but we really need to get on with
what it looks like.
Fiona Fry, KPMG
19. So what next?
This is make or break
So we seem to be gravitating to an acceptance that consumers
may not get the exact advice they need from simplified advice but
would not suffer from being told to save more through an ISA.
‘We focus on perfect outcomes too much when it is not always
possible’ was one of the central themes of last Tuesday’s
conference, which has some interesting TCF implications
reconciling the two could be a challenge if not managed carefully!
Simplified advice, it seems, is a process, not a person. The role is
really just a facilitator.
So whether providers and advisers adopt the ABI’s decision tree
model en masse or go their own route remains to be seen.
All will be key in determining whether this helps achieve RDR aims
of increasing access to advice or just further taints the industry!