Why do people find financial services so difficult?  

For at least 20 years, the government and industry has talked about the advice gap and how to fix it. The Financial Conduct Authority’s advice-guidance boundary review is the latest regulatory intervention to try and close it.

According to the Retail Mediation Activities Return in 2022, there were 3.9 million clients receiving ongoing advice, yet there are 51 million people in the UK aged 18 to 86. The government’s challenge must be our opportunity.

We can all imagine what financial services these people would ideally have: enough health, critical illness and life cover; a will; a decent mortgage rate; Isas and pensions with decent charges and features, using efficient funds for the client’s risk; and an emergency fund.

What is the point of ‘greater freedom in pensions’ legislation if the bureaucracy and liability make it so difficult to use them?

If everyone had these building blocks, individuals and society would be in a better place and the advice gap wouldn’t be an issue. So why isn’t it as simple as telling everyone to do that? It’s the same as telling people to exercise more, eat less, drink less, not smoke and so on.

My point is the issue is not that part of advice, it’s all the things that have to happen before somebody is able to put such a plan in place. And even once they are ready to do something, all the bureaucracy discourages them.

A consumer needs to:

• Perceive themselves in the future and have some concept of their needs then.
• Be willing to give up something today in return for something else later.
• Trust retail financial services to enable that.
• Accept reasonable expectations and ignore get-rich-quick campaigns.

It’s possible the consumer can get there on their own. Some do, and then procure their own products directly, perhaps using robo advice. However, the vast majority need or will need an adviser to get them there.

The fact the adviser usually then also procures the products for them too is only part of the process – but it is the most regulated part and thus the part that is documented. So, naturally, it’s the part of the boundary review getting the most attention.

If younger clients hear their parents and grandparents struggling to access their retail investments, why would they put their own money into them?

It’s easy to forget that a large share of the assets held by advised clients only exists because an adviser has taken them through the steps that have enabled them to build those assets. If we allow the gap to persist, we’re not only missing out on existing assets – there’s also the opportunity cost of the assets that might have been.

Putting a client in a position to be willing and able to buy financial products is where I believe the latest government initiative – and, in particular, the targeted-support proposal – can be different.

Financial educators, public-service ads and generic marketing have tried for years, and yet we have a gap. Meanwhile, other sectors have been able to market to and service consumers in ways that have become increasingly personal and targeted. With modern technology and automation, we can service all the consumers that need it and we can deliver compliant recommendations fast enough to make it profitable to take them on.

The problem isn’t the moment a consumer is ready to buy a product and become a client, it’s getting them to that point – and this can take a long time.

Having got themselves into the position to take action, what is the consumer’s reward? A barrage of bureaucracy

It is implausible a consumer could or would do everything in one go, and it is now easy to cancel, so the engagement and support needs to continue in any case. If targeted support empowers it, the advice industry can harness technology and automation to engage with clients in the same way other industries have used it to help customers become ready sooner, come to the right place and stick with it.

The image below shows where different generations are getting this support from at the moment:

Statista Global Consumer Survey July 2022

Will targeted support solve the advice gap and mean consumers will embrace retail financial services and advice – and stop using online trading platforms, crypto, get-rich-quick schemes or just spending it all?

Unfortunately, we have another hurdle to overcome: having got themselves into the position to take action, what is the consumer’s reward? A barrage of bureaucracy: fact finds bordering on interrogation, hearing about all the other things they could do, what could go wrong if they take action, that they can change their mind, how to complain if it all goes wrong…

Advisers can afford to deliver the advice and solution with modern technology, but can they afford to take on the liability for all the things they could or should have done?

The problem isn’t the moment a consumer is ready to buy a product and become a client, it’s getting them to that point

This hurdle applies to the advised as much as those in the gap. There is now a duty to support consumers when they come to use the product as much as when they buy it. What is the point of ‘greater freedom in pensions’ legislation if the bureaucracy and liability make it so difficult to use them?

If younger clients hear their parents and grandparents struggling to access their retail investments, why would they put their own money into them?

This is where simplified advice in the boundary review has to be simpler – not just in the solution but in the ways it is put to the client. And it has to immunise the adviser from liability for things outside of that remit.

In a Consumer Duty environment, the boundary review has a great opportunity to impact the advice gap and bring in a whole new group of clients – and we have the point of sale technology to enable it. In the process, we must make sure we also remember the importance of the steps before a sale and how the industry treats people when they buy.

Chris Jones is chief proposition officer at Dynamic Planner