A new simplified advice option could be available within two to three years, with regulators and government looking at options to plug the advice gap for financial services.
Speaking at the Corporate Adviser Summit Prakash Chandramohan, strategy director of TISA (The Investment and Savings Association), said proposals for a ‘third way’ advice option had “landed well” with both Treasury and FCA officials.
TISA has proposed options for both “personalised guidance” and “simplified advice”. However it said these options may initially only be available for those buying stocks and shares ISA, so would not be available to the DC at-retirement market.
Chandramohan said that TISA was “disappointed” by this, but hoped these new advice models would be widened in future. Ideally he said TISA would like simplified advice to be “wrapper agnostic”.
Chandramohan added that in either case there is the need for this advice option to be free – or at least significantly cheaper than regulated advice, to offer factual information and support, and to be personalised to the individual. However for the industry to offer this he said there was a need for a more limited redress regime, to limit liability for financial advice firms.
Chandramohan explained to delegates that under a simplified advice model there would not be a need to do a full fact find, instead savers and investors would be relied upon to complete relevant information about their own financial situation. Recommendations may then be made from a single product group.
Chandramohan added that TISA’s research indicated strong consumer demand for such support services, with people are generally positive about sharing their data if this can help advisers filter information on relevant products and better target guidance options.
He said: “People want more personalised support and guidance. They feel it will give them greater confidence to select a product and will help them make better financial decisions. It may also motivate them to talk to a regulated adviser.
“The problem at the moment is that people don’t know where to start, they feel overwhelmed. This should hopefully give them a better understanding of their position and what options might be relevant to them.”
TISA added that research undertaken had suggested that there would be support from consumers to pay a fee for personalised guidance support service, particularly in relation to retirement options. Research among the over 50s, with at least £20,000 in investable assets suggested many would be prepared to pay a £500 upfront fee with a 1 per cent ongoing charge for regular reviews.
The recent FCA update said it is looking at “exploring regulatory changes” to provide additional support services to mass market consumers both sales and support services.
The introduction of simplified advice would need legislative change by the Treasury to introduce new permissions for those providing this slimmed down option. Chandramohan said that there was an opportunity to do this when the current MIFID rules are get re-embedded into UK law, following Brexit.
Research undertaken by TISA showed the extent of the advice gap when it comes to making financial decisions. In a survey of those with at least £10,000 in savings and investments, 54 per cent said they had no formal support. Just 17 per cent had sought regulated financial advice, while 29 per cent had received some form of guidance.
Chandramohan says the number of people with no access to support or guidance would increase significantly among those with lower levels of savings and investments.
However, it could be some time before it is made available for DC savers as currently the FCA is focusing on its use in the Isa market.