Bridging the Gap

3 minute read

P1’s CEO, James Priday, recently contributed to a piece of research published by Octopus Investments on the financial advice gap. This included the widening of the gap, raising awareness of financial advice as a career, the harnessing of technology and new ways of working. James discussed how the regulator needs to reassess the difference between regulated financial advice and general financial guidance if advisers are going to feel empowered to come up with solutions to close the gap and be able to assist those with more straightforward requirements.

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“The difference between advice and guidance is whether you’ve gathered personal information from that individual, and you are recommending a course of action based on that personal information, for example, to invest in a specific product,” says James Priday, “That’s the regulator’s stance, but I think that needs to change.”

Looking at what’s potentially a regular hypothetical occurrence, James shows the need for flexibility in the regulation.

“Someone asks me whether or not they should use £40,000 of inheritance to fill their ISA allowance across two tax years. On the call, I gather a bit of information, and I learn they won’t need that cash until they are at least 55. So, I might recommend that they consider putting it into their existing pension instead.”

Without changes in regulation or a very efficient advice process, then the cost of giving this potentially regulated “advice” would be prohibitive due to the need to provide a suitability report and gather relatively extensive know your customer information.

“In an ideal world, I should be able to say that to someone without it being deemed as advice, even though I’m technically making a personal recommendation. I could then charge a much lower fee for that type of service as I don’t have to do all of the things that need to be done when I am giving regulated advice.”

James also took time to focus on how financial advisers need to process map their businesses. If this is done well, then it is easier to use technology to make operations more efficient by identifying areas that are very manual.

The research highlighted that 48% of financial advisers are serving more clients than they were 5yrs ago. If the industry is to close the gap, advisers need to be able to serve more clients efficiently.

“You need to be able to show: this is how we do things; this is how we onboard a client; this is how we write a certain type of business, this is how we do an annual review. Once you’ve got that,” says James, “you can start to ask, ‘How can I make these processes more efficient? How can I get all of the onboarding documents completed upfront with electronic signatures? How can I gather fact-finding data electronically?’ Then you want to look at how to integrate these individual processes with your back-office systems.”

It’s clear that technology is the enabler to allow financial advisers to better serve their clients. Technology can remove the burden of inefficient processes, allowing advisers to focus on what’s most important, giving personalised advice and guidance to their clients.

The research by Octopus Investments indicated that 29% of advisers surveyed were looking to retire by 2025 and a further 33% before 2030. There is clearly a huge need for newly trained financial advisers to replace those retiring. However, a survey of university students showed a lack of understanding about financial advice as a career and a low desire to enter the profession. On a positive note, it showed that when the career path was explained, an impressive 45% said they would consider financial advice as a career.

As the demographics of financial advisers change, the industry needs to adapt quickly. A younger generation of advisers and clients expect technology to be connected, making their life easier. They will not accept paper processes and delayed access to information. Applications and transaction need to be instant and information available in real-time. This will be the baseline expected in a few short years.