The US model of online advice delivered without human intervention is the answer to the advice gap opened up by the RDR, says eValue strategy director Bruce Moss.
Speaking at an eValue round table event on the implications of automated advice this morning, Moss said simplified advice is the only way the mass market can be given access to affordable advice, and added that he believes the FCA wants to see simplified advice models launched. He pointed to American players such as Schwab and Vanguard that had launched automated propositions in recent years.
Moss warned that the guidance guarantee is unlikely to give enough assistance to consumers, who want to be told what to do rather than be left to figure things out for themselves. He also warned that the new pension flexibilities mean that retirement income advice will no longer be a once-and-done process for the majority, leaving simplified, automated advice as the only viable way of serving the mass market on an ongoing basis.
Moss said: “Simplified Advice has to be the answer to the advice gap opened up by the Retail Distribution Review as it is the only way that affordable advice can be delivered to the mass market.”
“Advice on retirement income options for many people will not be a ‘once and done’ activity anymore. Retirees, who don’t buy annuities or packaged lifetime income solutions, are going to need on-going advice on what to do to make the most of their retirement savings and automatic Simplified Advice will be the only affordable option for most people.
“In the last six years in the US, Robo advisers offering online advice have taken off with major institutions like Schwab and Vanguard now entering the market. Here the regulatory hurdles are perceived to be higher and potential entrants are nervous about crossing the “grey line” from guidance to advice.
“The regulatory problems of offering simplified advice are not in surmountable. Software solutions can be built to ensure that compliant advice is available to consumers and that consumers with untypical needs are identified and appropriately catered for. The major challenge will be motivating consumers to engage with an online advice process. Behavioural economics and gamification techniques can be used to help make an automated advice process engaging and fun. Telephone support as well as educational materials and social media could also be an important part of the mix.
“We are in for a period of innovation and exciting developments over the next few years as the digital revolution finally reaches the advice market and the rewards for success for the consumer and the financial services industry will be considerable.”
