In response to the Financial Advice Market Review being conducted by the HM Treasury, Capgemini has made six recommendations looking at the current regulatory and legal framework governing the provision of financial advice and guidance to consumers, and its effectiveness.
Rod Bryson, Principal (Wealth, Long Term Savings and Insurance) at Capgemini Consulting, comments:
“The UK is a fantastic market and has the opportunity to become world leading. However, there are a number of barriers to the supply of advice, and also barriers to consumers who want advice. The sector is reaching a crucial inflection point in the next two or three years - and what happens now will dictate whether the sector and consumers, prosper. There are great opportunities, but no single solution will improve access to advice.”
“What is needed is an environment which delivers improved access to advice and delivery of consumer outcomes, while encouraging financial advisers and product providers to invest capital and build sustainable consumer-focused businesses. We made six key recommendations which we believe would support the achievement of the above. But implementation will require the cooperation of government, regulatory bodies and the industry itself.”
1. The cost of advice needs to reduce through the use of new technology to shorten the advice process for advisors. This is not about ‘robo-advice’. It’s about advisers using robotics, and other technology solutions, to reduce the time taken for key elements of the advice process to be completed. This will facilitate a faster and more efficient interaction between consumer and trained financial adviser at a lower cost - and hence at a lower charge.
2. Complexity within the market environment needs to reduce. The sheer volume of historic and current pension and tax rules is a key reason why advice is complex and carries risk. Reducing this complexity would help improve access to advice at an affordable price. A one-off ‘clean up’ is not enough, however. Government also needs to provide a stable, long-term, savings environment, free of constant tinkering. At a practical level, the introduction of a pensions dashboard is also required.
3. Transparency in how fees and performance are calculated and presented. It is crucial for consumers to be able to compare the impact of fees. But consumers also need to understand the impact of fund performance on their overall value. Our focus should not be on the lowest cost provision, but on the overall value and how this is communicated to consumers. This would help simplify the sector, aid financial advisers, reduce the cost of advice, and help consumers understand which organisations deliver value - ultimately building trust.
4. Apprenticeships, new advisers will be needed during the next few years to help avoid a future advice gap for which we recommend the introduction of apprenticeships.
5. Improving industry culture, bringing new thoughts into the sector is crucial to support the development of a customer-centric and innovative culture - in particular further aligning adviser remuneration with the delivery of consumer outcomes.
6. Government support for innovation investment. The sector needs to invest. Other key sectors have previously received support for research and development investment. The financial advice sector now needs the same support.
“It could be argued that there is no advice gap today,” explains Bryson. “We certainly don’t see a consumer outcry for better or cheaper access to a financial adviser. However, without combined activity by government, the industry, and technology innovators, we believe there will be an ever-widening gap between the advice consumers need, and what they actually receive. Our recommendations will help address that gap.”
If you’d like to discuss any of the above or receive the full version of Capgemini’s recommendations, please get in touch with Rod Bryson.