What’s Next… for financial advice?

14.07.2011

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Consumers can look forward to a day when they can trust the financial advice they are given, we heard today at our event looking at the biggest shake up in the way financial advice is offered when the Retail Distribution Review (RDR) comes into force.

The speakers were:

• James Daley, editor of Which? Money
• Gavin Lumsden, editor-in-chief, Citywire

The key points were:

• The RDR is an important first step, but it only addresses half the problem. The other half is where people can get advice if they are between the top and bottom ends of the market
• Creating a financial relationship between advisers and consumers (rather than between advisers and providers), will create a “service” rather than “sales” culture and over time help restore trust
• The industry needs to start looking beyond the formal regulatory environment that governs it and establish its own ethical standards. The role of the workplace in introducing people to and engaging them in financial planning should be developed much further

The advice gap

Both speakers welcomed the RDR, believing it will be crucial in building confidence amongst consumers.

But James believed it only addresses half the problem. The majority of people source their advice from friends and family, rather than from IFAs – which are still largely the preserve of the well off.

He felt the scope to develop the workplace as the initial point for people to start getting financial planning guidance, beyond the pension measures to be introduced next year, had huge potential that is at present not being addressed.

Gavin felt the emergence of professional financial planners operating solely for their clients’ benefit might over time help fill the advice gap and serve the less wealthy. The starting point will be for the well off to be able to get good advice and, over time, one of the challenges will be to encourage that to trickle down to the less well off.

Banks and building societies

The role of the banks and building societies will be crucial in delivering financial advice but opinions differed on how important it is for them to be involved.

Given that the high street is very often the first port of call for many consumers, James Daley was disappointed that Barclays and HSBC had pulled out of the advice market. In order to fill the emerging “advice gap”, he felt over time they would need to become more like utilities (with shareholder returns to boot).

Gavin Lumsden felt the challenge was for the banks to decide whether or not they could develop a decent proposition or, if they cannot, to get out of the way.

Building ‘trust’

Gavin paid tribute to the FSA for its perseverance throughout a very long process.

A crucial issue within the RDR, which Gavin also highlighted, was the creation of a code of ethics. This will be vital to create the trust needed to make the new system of advice work effectively.

Simplified products

James and Gavin agreed that simplified advice should be linked to simplified products. However, there was a warning that issues such as the mis-selling of PPI emerged through the provision of simplified products. There was also discussion on the importance of providing broader financial planning.

Adviser exodus

The RDR will mean significant changes to the IFA market. While many IFAs are part of a ‘cottage industry’, the RDR may result in some consolidation amongst advisers.