The financial services industry does not have a good reputation when it comes to putting customers first. UK consumers have a lack of trust in financial services companies particularly when it comes to advice, this is largely due to the mis-selling scandals that have been widely reported over the past few years. A PWC survey in 2014 found that just 28% of people trusted financial advisors. When 1 in 5 people cannot read a bank statement and around half of the population find it difficult to understand pensions1 how can the industry work to provide the service UK consumers so desperately need?
This is exactly what the Financial Advice Market Review (FAMR) set out to do. As the final report describes it ‘The aim of the Review has been to explore ways in which Government, industry and regulators can take individual and collective steps to stimulate the development of a market which delivers affordable and accessible financial advice and guidance to everyone, at all stages of their lives’.
Anything that forces the industry to put consumer needs at the centre of future development will improve the service that is provided. The findings of the review call for different levels of advice or guidance that make it easier for consumers to understand the products they are buying. Some of the report’s recommendations have taken inspiration from fintech innovators, like MoneyFarm, and call for ‘robo advice’ models.
Technology is a great enabler in all industries, but the implementation of that technology, in line with regulation is not simple. Paul Pester, CEO at TSB, said at a recent event ‘I would love to be able to say to a customer that if you put that £15 you have left at the end of the month into a long term savings account it would be worth the following when you get to 60. We can use technology to do this. But that’s advice and who wants to take on the responsibility of that’. Figures suggest that the regulation introduced after the Retail Distribution Review (RDR) improved the quality of advice but it meant that around 38% of people are buying financial products without receiving any advice.
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We live in a country where, according to the 2016 Voice of Advisor Survey, 32% of advisors ask for a portfolio greater than £100,000. If you look at Unbiased.co.uk the average cost of an initial financial review is £500, for individuals with smaller savings pots advice is either not available or inefficient.
To help close this advice gap FAMR has made 28 recommendations focussed on 3 areas:
- Liabilities and consumer redress
FAMR’s recommendations call for an industry where it is clear what is meant by advice, the provision of that advice is more cost-effective and transparency enables a greater understanding. We welcome the recommendations set out by the Financial Conduct Authority and the HM Treasury. It is time that financial services products were truly customer focussed.
1 Financial Times, 2016