By Dale Critchley, Workplace Policy Manager, Aviva
Back in my school days, the best advice I can recall was from my history teacher who said I should consider going to university - something that until that point I had not given any thought to, but which shaped my life thereafter.
There are clear benefits in considering any kind of advice from those who have more experience or a different perspective, especially when there are difficult and important decisions to be made.
When it comes to money, financial advice is a regulated activity which can only be given by firms who are regulated by the Financial Conduct Authority (FCA). The financial adviser provides a recommendation about a course of action that meets the needs and aims of the individual which considers their complete financial picture. If the advice proves to be flawed, the individual might be entitled to receive compensation from the Financial Services Compensation Scheme (FSCS). This helps to provide consumers with the reassurance the amount paid for regulated advice is money well spent.
FSCS research found not everyone thinks of financial advice as that which is defined within FCA regulation. Amongst 678 individuals who said they had sought financial advice in the past 5 years, 17% didn’t seek advice from a professional adviser. Websites, online forums, and friends and family were all cited as sources of advice. Of those who sought professional advice, 46% said the advice was free. While free advice is a possibility, it might be more likely that commissions were not understood or what they considered advice was actually guidance.
Further clarification of the boundary between advice and guidance is just one deliverable of the FCA’s Advice Guidance Boundary Review (AGBR). It is also looking at how we bridge the gap between those who might benefit from advice and those who currently seek it. FSCS research showed that only 36% of those with savings, investments or a mortgage had sought any form of advice.
One idea under consideration is Simplified Advice. This is advice on a specific need identified by the consumer. This more limited advice might lend itself to a focused fact find which could result in a lower cost solution while still delivering a personalised recommendation. The FCA proposed using Simplified Advice for investment advice within an Individual Savings Account (ISA) but the review is now examining a potentially wider role.
Another consideration is Targeted Support. This could be based on either data held by a provider, or a limited fact find and would result in a recommendation based on “people like you”. This is not a personal recommendation and aims to deliver a better solution, rather than an optimal one. It opens up the possibility of pension schemes using data to help customers set appropriate savings targets based on the pension contribution data held by the scheme. It could flag to savers when too much or too little investment risk is being taken based on proximity to pension age. Or when too much or too little income is being drawn down in retirement.
While holistic regulated advice is likely to remain the gold standard, the proposals in the AGBR have the potential to make a material difference to savers’ decision making and could drive much better outcomes.
When I think back again to the advice that I was given at school, on reflection, it was not advice - it was actually Targeted Support.
Because my history teacher told me that “people like you” go to university. Whether it was advice or guidance – or what type of advice it might have been - does not in any way lessen the impact it had on my life over those 40 years.
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