A short 4 years since the Retail Distribution Review, the UK advice market prepares itself for another big piece of regulation that is likely to alter the who, what, where and when of Financial Advice.
Many industry opinion leaders including Matt Timmins (joint Managing Director, SimplyBiz Group) predict that the implications of the Financial Advice Market Review will be just as important and far-reaching as those of the Retail Distribution Review. Through the framework of Financial Advice Market Review, the FCA is essentially seeking to address the growing advice gap which means around 16 million investors with more modest assets are unable to get adequate financial advice – something which is increasingly important post pension freedoms. The FCA in turn hopes to support advisers in providing this advice by creating a regulatory environment that makes effective competition, growth and innovation easier by examining the barriers firms face in giving advice and the barriers investors face in seeking advice.
As the regulator sets the scene and encourages more demand for advice – come August, there will be increased opportunity for advisers to generate more business and service clients better. Research from Zurich on FAMR expectations showed that 21 per cent of respondent advisers want to be able to provide simplified advice for existing clients.
But how will they find the time to do so, and what added pressure will that place on their business processes?
Client segmentation and the need for suitability
In January 2015, the regulator published the ‘Consumer Spotlight’ – an investor segmentation model that offers financial professionals detailed descriptions of 10 segments based on financial characteristics and behaviour. The spotlight is the result of a specially commissioned survey of 4,000 people across the UK and hopes to help professionals deliver more suitable products, solutions and services to investors across the country.
The model reveals the great variety in investor characteristics and therefore requirements - a significant part of the segmentation highlights the wealthy, ambitious and savvy investors who have high income/savings and are financially confident (‘retired with resources’, ‘affluent and ambitious’, ‘mature and savvy’,’ ‘stretched but resourceful’). Investors in this bracket are likely to approach financial advisers for carefully planned, bespoke solutions at or for retirement. In contrast are the younger, more curious and more tolerant of risk millennials who, as the segment names would suggest are ‘busy achievers’ who are ‘starting out’ and ‘living for now’. There is also a meaty middle segment of consumers who are ‘hard pressed’, ‘striving and supporting’ or are ‘retired on a budget’. Investors in this category are likely to be extremely cost sensitive but still need advice and robust and consistent financial management.
A casual glance at the model reveals the diversity in the market and the potential variety in terms of propositions that would be required to serve the whole of market as the FCA would like. Is it realistic to expect Financial Advisory firms to serve the needs of clients as diverse as this?
As more investors seek professional financial advice, there is also a growing number of investment products available in the market to suit their needs, thereby leading to an increased onus on advisers to thoroughly review and research the market to ensure they recommend the most suitable solutions to each category of investor.
Costs of advice
Research and establishing suitability does not come cheap. It requires a significant amount of resources in time and hours to risk profile clients, trawl the market for data, compare, contrast and draw conclusions and to effectively tailor solutions to suit a client’s needs. Even with more “ready made” and “outsourced” investment options, the responsibility of supporting the client in achieving his/her investment objectives very much lies with the adviser. In addition to this the adviser is faced with seemingly ever increasing fees and levies imposed by the regulator.
Technology – the key to your investment success?
An increasing number of financial advisers are coping with these regulatory and operational pressures by using financial planning tools that can streamline their investment process and save time as well as new technologies to support business growth. The boom in the FinTech industry in the UK has offered intermediaries a variety of web based investment solutions that offer a cost effective yet compliant method of investing and then managing client assets.
The regulator also recognises in the final FAMR report, the crucial role technology is set to play in bridging the advice gap and serving all consumer segments. Testament to this, is the fact that the FAMR makes a commitment to review the opportunities and challenges presented by new and emerging technologies to provide a cost effective, efficient and user friendly service to clients.
In a line with the regulator’s agenda, FE Analytics+ are working on a new Investment Planner which will give advisers the ability to customise their Centralised Investment Proposition to suit their internal client segments. The Investment Planner will be backed by 20 years of data collection legacy and will give the advisers the freedom to create their own ‘one-stop shop’ to research, invest and connect better with clients.
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