Bella Caridade-Ferreira: navel observation at FCA

The Financial Conduct Authority has finally released its report on assessing the impact of RDR and FAMR. There was nothing new or surprising in its findings – indeed, the industry told FCA this would happen since the introduction of RDR.

Essentially, he found that people with money are well taken care of, but people with modest wealth do not seek financial advice and usually hold too much money (because they don’t know they need advice). He acknowledged and expressed surprise that “many consumers do not seek or receive financial assistance that would allow them to make better financial decisions.”

The FCA also reviewed the range of services available to consumers, including providers of information, guidance and advice. He pointed out that there were more than 5,000 consulting firms and 27,000 regulated professionals and that digital or online automated consulting services are increasingly common but only represent a fraction of the overall market. He found that 54% of UK adults with £ 10,000 in assets to invest were not receiving any formal support … or were unaware they could benefit from it. He also revealed that 37% of those with £ 10,000 in investable assets were all in cash.

The regulator believes that a combination of factors explains why people are not turning to financial services to improve their financial outlook. His conclusions were that 1) savers did not realize that they needed it, or that they were reluctant to use unfamiliar brands; 2) there was not enough innovation in the consulting market and advisers “face little competitive pressure to innovate and offer more affordable services or to try to attract less fortunate clients”.

While the regulator may have an update on ongoing advisory fees and consolidation, they cannot expect advisors to change their business models and working practices without the right incentive (if the business model d ‘an advisor works and has enough business, why would he change it?). These factors are extremely naive and downplay the role of the regulator in the lack of advice.

1. Only the rich get advice

Nowadays, ordinary people think that investing is only for the rich while saving is for ordinary people. Investments do not cross their radar. There are too many obstacles in their path – the language, the modesty of their wealth, and finally trying to find an elusive advisor who might actually be interested in their business (the harder the search, the more they think it is. is not for them).

By introducing paid advice, the regulator has driven financial advisers off the high streets and ensured that advice is seen as a service for the rich and the rich. Rather than democratizing investing for all, successive regulations have made advice ‘exclusive’, creating a mindset of them and us – advice is for the rich and ordinary people are content with savings accounts. It is a view that is also reinforced by the lack of advisers in our shopping streets across the country.

If investors find an advisor, then there is an incredibly high price to face (which the regulator acknowledges in its report). There is a fixed cost involved, which means that the price of an Isa of £ 10,000 or £ 20,000 is significantly higher as a proportion of the overall wallet compared to the bigger ones. This is because the fees must cover the cost of fact finding, as well as contributing to the overhead costs of an advisor. But of course, the consumer does not know this and will assume that the advisor is scamming it… this is the first negative perception. Second, the detailed investigation itself is likely to make a consumer believe that he is wasting an advisor’s time – the second negative perception.

2. Do I need a haircut?

Most of us know when our hair needs attention (locking in has made this extremely obvious) and that applies to financial decisions as well. None of us go to the hairdresser to ask if our hair needs a cut… so why do we have to know if we need advice?

When we approach an advisor to open an Isa, we shouldn’t be “toasted” about our finances – a light and quick review should be enough for most people with simple needs who want to save for the long term. . In-depth screening or “fact finding” increases costs and contributes to the negative perception that investments are proprietary… or contributes to the perception that investments are too risky.

We do not investigate when people take out extremely expensive payday loans or credit cards. Or go shopping on Klarna. But the way investments are heavily regulated compared to the lite approach to debt and credit cards only reinforces the idea that investments are complicated and only suitable for sophisticated people.

3. The computer says “no”.

Where are consumers going? In line? It doesn’t work for a lot of people, whether they are old or young. Money is an emotional topic – consumers have worked hard for their money and want reassurance about their decisions. We get dozens of calls per week from users asking what we think of individual platforms. We can’t tell them of course, but we help them express their needs more clearly and find the answer themselves. Online solutions just don’t give them the personal attention they need.

The regulator recognizes that despite its best efforts to clarify regulations, companies are reluctant to offer streamlined or targeted advice for fear of straying into the realm of regulated advice. He blames advisers and suggests that if consulting firms harnessed the technology better, they would be able to research more cheaply and lower the cost of providing streamlined or targeted advice.


At the same time, the regulator states that “the consulting industry is made up of a large number of small businesses: 89% of businesses have five or fewer advisers.” I bet these advisers know a lot more about advice than technology. Expect small consulting firms to have the expertise to advise clients AND having the time and knowledge to review the technology needed to improve their business model is extremely naïve.

And then of course, if the advisers have set up a simplified counseling service, how do they find these clients? They are unlikely to attract enough customers to justify the expense of creating the service in the first place. The FCA report already recognizes the low use of automated services. Which comes down to the question of consumer perception – advice is hard to find, advice expensive, advice exclusive – so consumers don’t know how to look for it.

When consumers seek “advice”, the scarcity of readily available good information means it often ends up in the hands of scammers, or Nigel Farage promoting all kinds of dodgy investments under the guise of “financial advice.” free ”. . But these pinch points can be taken out of the retail consulting market or neutralized with a little thought and dare I say it, innovative thinking.

Innovate, innovate, innovate

But it is not the advisers who must be more innovative, it is the regulator. Quite simply, we need to make it as easy to invest money as it is to spend it.

How can we reasonably expect consumers to trust the industry, if every ad has to carry a detailed “risk capital” warning? You wouldn’t see this in a Tesla tweet. Is it any wonder we have a savings deficit when luxury goods makers can use all the tricks in the book to persuade us to spend our hard-earned money, but suggesting you invest means worrying about disclosure? , relevance and relevance? It’s just not a contest.

The regulator can continue his periodic navel gazing, but until he realizes that regulation is part of the problem, nothing will change. It should ease the regulatory burden on ordinary investors, lower costs for providers, and facilitate the development of streamlined or targeted advice, whether online, face-to-face or through hybrid models.

It should establish a kitemark or other standard rating system for retail investment solutions to ensure that they are safe for mass consumption, get rid of excessive regulation of the advisory process, and accept that the investment involves some risk, but it’s better than not investing at all. Then you could see real innovation.

Bella Caridade-Ferreira is Managing Director of Fundscape

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