The debate surrounding the advice gap is like the sea – it comes in waves but it is always there.
We are currently at high tide again, with the Financial Conduct Authority gathering feedback on new proposals to tackle the issue.
This is by no means the first major effort to close the gap, which has now been a serious concern for more than a decade.
That in itself tells us the chances of a swift resolution are somewhere between slim and zero – and most likely much nearer the latter.
By and large, the saga can be traced back to the Retail Distribution Review. Introduced by the FCA’s predecessor, the Financial Services Authority, the RDR set out to fundamentally transform the landscape of financial advice in the UK.
One of the most striking ways in which it achieved this goal was to raise professional standards.
This arguably served to rid the market of many advisers of dubious competence, which has to be seen as a good thing.
Unfortunately, the RDR simultaneously hastened the departure of many perfectly proficient advisers who did not relish the prospect of sitting more exams and jumping through additional bureaucratic hoops.
That is the law of unintended consequences for you.
The impact of this exodus is still being felt today.
The number of people leaving the industry has substantially outweighed the number entering it. The average age of an adviser is now nudging 60, and few of those who retire are being replaced.
All this is clearly bad news for clients and potential clients alike.
So how might we finally meet the challenge?
The FCA rightly identifies technology as central to the way ahead, yet it is vital to note that tech can often widen the advice gap rather than narrow it.
Tech minus advice
The main object of confusion here is the distinction between tech that enables access to advice and tech that merely enables access to investments. The first is part of the solution. The second can be part of the problem.
The 2022 edition of the FCA’s Financial Lives survey reported that just 4.4mn consumers sought financial advice during the previous year.
Meanwhile, almost three times as many “used information or guidance to help them with decisions about investments”.
That “information or guidance” came from websites, workplaces, social media and even family and friends.
As the FCA concedes, research has shown many of these sources do not instil investors with sufficient confidence in their choices.
This hardly seems like a recipe for long-term investment success and financial security. Yet millions of people essentially rely solely on such inputs before going online and plunging head-first into the stock market.
