Current business models do not make it possible for firms to serve those in the advice gap, according to Adam Carolan, chief executive of NextGen Planners.
Speaking to FT Adviser, Carolan discussed why it was difficult for advisers to address the advice gap and how they might begin to tackle it in the future.
He said: “It is costing thousands of pounds every year to service a financial adviser client.
"Therefore, when people talk about the advice gap, how do you go further down the value chain to look after people in the advice gap when you know it is going to cost you £2,000-3,000 per client? Ultimately that’s the problem financial advice firms are facing.
“There are a couple of firms that are trying to use technology, and trying to limit the scope of what they're doing to go down that chain into the advice gap but it's very difficult.”
Carolan felt that financial advice done well was a complex and relationship-based job and therefore questioned how you could scale it and bring the cost down, particularly with the cost and difficulty of compliance.
“With consumer duty, firms now have to demonstrate value in a new way to clients. That costs money for firms which they then have to pass on to the end client because they have to make a profit. So, I just don't see, at the moment, how it is possible for firms to go into the advice gap with current business models,” he added.
Tackling the advice gap
Although at the moment Carolan could not see how firms can help to address the advice gap, he discussed what he could see happening in the future.
He said: “At the moment we are working on a one-to-one basis but we might see different business models emerge on a one to many basis. Whether that’s through a community or education type platform or social media.
“This is where we might see some more prominent or new business models appearing where firms will say they are going to monetize this advice/guidance they are providing on YouTube or TikTok or different social media channels. But we're not there yet and the business models are not there yet.”
Carolan pointed out that supply and demand for advice was high and most financial planning firms were currently full.
“To say to firms, go into the advice gap - what’s the benefit? There is no benefit. New firms may have a different perspective but the demand for advice is still very high and the supply of advice is still very low.
"So actually you have a bit of a supply and demand issue with the advice gap because there aren't actually enough financial advisers to properly cater for all the people who want advice,” he added.
Industry in a “strange phase”
Carolan said the advice space was going through a “strange phase” as after Covid the sector seems to be doing well and so nothing is forcing advisers to change.
