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There is one question that readers and podcast listeners in their 30s ask me more than any other: “Where can I find a financial adviser?”
Unfortunately, regulated financial advice is expensive, making it almost exclusively the preserve of the already wealthy. Those aspiring to build wealth or make the most of smaller sums have a tougher time finding affordable advice tailored to their circumstances — but a radical shake-up is coming.
“I’d liken the choices in the advice market to buying a packet of seeds and trying to grow your own, or employing a full-time gardener — there’s nothing in the middle,” says Holly Mackay, founder of consumer website Boring Money. A longtime campaigner over the UK’s advice gap, she estimates 12.2mn people with investible assets of £770bn are locked out from obtaining professional help managing their money.
If there were a mass-market solution for giving people in their 20s and 30s better support with financial decision marking, just think how much more financially resilient they would be in their 50s and 60s.
The answer, according to a long-awaited discussion paper from the Financial Conduct Authority, is to recalibrate the boundary between generic financial guidance and more personalised advice tailored to a person’s individual circumstances.
So how would it work?
The regulator’s first idea is providing consumers with “targeted support” or a nudge in the right direction. This would likely be free, in the form of more personalised communications from firms they already have a relationship with. Investment platforms, banks or pension providers could leverage the data they hold on us to take conversations a stage further.
“Right now, we can send customers generic warnings, but we can’t make it specific to that person,” says Anne Fairweather, head of public policy at investment platform Hargreaves Lansdown.
Take someone whose entire investment portfolio is concentrated in one or two very high risk stocks, for example. If I received an email saying “Claer, you have a very high-risk portfolio,” I’d be much more likely to act on it than on a generic one asking “Is your portfolio diversified enough?” But right now, that’s straying too close to advice.
The FCA envisages firms could pinpoint different target markets, and the kinds of issues they’re likely to struggle with. Knowing what “people like you” might do in a similar situation isn’t advice, but it is the kind of sense check many of my younger listeners crave.
These nudges could be applied in all kinds of areas, such as saving more into pensions, alerting consumers about the consequences of withdrawing pensions cash too rapidly or prodding the estimated 4.5mn people with £10,000 or more sitting in cash to think about investing.
The second big idea is “simplified advice” — giving one-off, low-cost investment advice to consumers with simpler needs and smaller sums to invest. Finding a model that’s profitable for firms to deliver yet affordable for customers is a much harder nut for the industry to crack (many people I spoke to this week noted Vanguard’s ill-fated foray into the advice arena).
The FCA proposes an investment limit of £85,000, but has already stated that pension decumulation, the phase where you withdraw and spend your retirement pot, will have to be excluded on the grounds that it’s too complex. This is an issue that many older FT readers struggle to get advice on, never mind anybody else.
It is now seeking detailed feedback on proposals from the industry. Investment platforms are broadly positive (those 12.2mn people are a sizeable commercial opportunity, and many already provide restricted investment advice) whereas traditional advice firms are more guarded.
“Up until now, the regulator has preferred millions of people to be perfectly wrong, rather than imperfectly right,” says Mackay, stressing the huge step change this represents. But she makes an important point. While this will probably improve financial outcomes for millions of people, it cannot guarantee them for everyone.
The financial advice market is heavily regulated for good reason, and one immediate fear is that loosening the rules will increase the potential for mis-selling. The regulator will also need to manage the inherent conflict of interest in allowing investment platforms to dispense advice. As Mackay puts it, “Would a crisp manufacturer ever say people like you should really be eating an apple?”
However, the new Consumer Duty, which requires firms to demonstrate that they achieve good customer outcomes, gives the FCA much more flexibility in how it polices this.
Thanks to the Consumer Duty, financial firms are already mapping customer experiences online and are learning more about where people tend to get stuck and need more support. Combining these data insights with more targeted nudges sounds like a logical next step.
There’s been a big focus on getting people to start investing, but many of the 30-somethings contacting me are looking for reasons to stay invested, having seen their portfolio fall in value. Addressing behavioural biases in investing and helping consumers think about the long term, adjusting and rebalancing their portfolio as their life circumstances change are all areas where targeted support could make a difference.
As Fairweather says, investment advice is not a “one and done”, it’s something that needs to be revisited over time.
The proposals have cross-party support, but the biggest challenge will be the cost of providing these services at scale. AI could be a game-changer, although one of the main reasons people seek advice is because they want human reassurance that they’re doing the right thing.
Nevertheless, a better-defined boundary will give firms the confidence to invest and create the potential for innovation. Who knows what could be possible! And enabling millions of people to engage more deeply and meaningfully with their finances has to be an improvement on the current situation.
According to FCA research, only a quarter of Brits are confident they actually understand their annual pension statements. One in three pension savers over the age of 50 confess they have never heard of drawdown, or know what an annuity is. Yet nearly 6mn UK adults are estimated to own high-risk investment products such as cryptocurrencies or contracts for difference.
Yes, there will be risks, but can they be greater than allowing millions of consumers to continue to fumble in the dark with their finances?
Claer Barrett is the FT’s consumer editor and the author of ‘What They Don’t Teach You About Money’. claer.barrett@ft.com Instagram @Claerb
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