Redrawing the advice map

The joint policy paper on the advice guidance boundary from HMT and the FCA is trying to find new ways to persuade the industry to create what the FCA refers to as a ‘continuum of support’ for customers. Here are some of our reflections on whether or not the latest proposals will help customers access the services they need.

A Financial adviser in conversation with her client

The advice gap has been talked about so much it is in danger of becoming a permanent feature of the financial services landscape in the UK. The FCA’s 2022 Financial Lives Survey found that only 8% of UK adults had taken financial advice in the previous 12 months. This is concerning in a country where the savings gap is a significant barrier to good retirement outcomes and, perhaps, surprising given how complex it is to navigate pension provision in the UK. It is also a concern when we know that financial literacy is a huge issue and that many customers would benefit from support in making critical decisions.

The evident need for financial advice and why so few seek it out

From our own insight work, we know the reasons people don’t take advice are many and complex. The harsh reality is that many individuals in the UK are struggling with the cost of living and don’t have discretionary spend that they can divert into savings. When it comes to those individuals that do have savings put aside, there are some fundamental pre-conceptions that colour views on advice: customers prefer to stick to cash and assume that only ‘investors’ (not people like them) need advice; even those with substantial savings don’t consider themselves wealthy enough to need advice; and there is an ongoing issue with trust in the financial services sector more broadly – when we talk to customers, many are more likely to ask family or friends for advice. Although (in theory) Consumer Duty applies to social posts, the finfluencer genie is also tricky to put back in the bottle.

So, could the proposals help? In our view, there are some constraints in the proposals that might stand in the way of delivering genuinely targeted support to those customers that need it most. For example, we agree there need to be parameters to how firms use personal data, but firms do not always have a lot of data on older client books – how then can suggestions be appropriately targeted. That is probably a discussion in itself that is too long to cover here.

Navigating each step along the continuum

Overall, we welcome the move to clarify where the boundary lies between advice and other forms of support – any step that has the potential to improve customer outcomes and widen access to the right levels of support can only be a positive thing. Hopefully the right regulatory framework will allow firms (and employers in some instances) to deliver greater support to customers (or scheme members) without straying into uncertain regulatory territory.

Getting the technical definitions right to encourage innovation is a step in the right direction, but bridging that advice gap is about more than just clarifying the rules. For TWC, as well as customers recognising that they need advice in the first place, perhaps the greater challenge is ensuring customers understand the exact nature of the support being provided.

George Osbourne famously muddled advice and guidance when announcing the new pension freedoms in 2014. When the rules around targeted support talk about it offering customers a ‘suggestion’ not a ‘recommendation’ it feels like a nuance that many customers would not instinctively get. Even some dictionary definitions are less than helpful when they describe advice as ‘guidance or a recommendation’.

Considering the challenges that lie ahead

So any communication needs to be very specific about what each level of support along the continuum really means to the customer experience – where does the liability sit for decision making and what costs are incurred along the way. A few challenges that jump out immediately:

  • We would agree that targeted support is likely to be seen as an extension of existing service levels by most customers, but when the FCA talks about this being delivered ‘without explicit charges’ it is a concern. We know from our own work that the industry does a pretty poor job of explaining fees and charges in a way that customers can understand.
  • The targeted support proposals allow this to be delivered through scripted phone interactions – more work needs to be done to understand whether the delivery mechanism influences customers’ perceptions of what level of support is being given. Our hypothesis is that a phone call feels more like guidance.
  • Simplified advice will also need to be very clearly differentiated for customers. There is also an implication that the advice or situation you are advising on is itself simple – whereas what the FCA really means by this is transactional one-off advice.

For the initiative to succeed, the communication around any changes or new services needs to be clear and relatable. If the industry can crack this alongside an expanded range of support, it could be a genuine game-changer.

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