Does the advice gap still exist?
The financial advice market was overhauled several years ago, resulting in a significant impact on regulation of the industry. Many investment and finance managers terminated relations with a number of their clients, as the new rules meant investment management firms and advisers could no longer collect commission on the products they sold.
The regulations, or Retail Distribution Review (RDR), were intended to improve transparency in the profession. Under the RDR, financial advisers could only charge for the services they provided to their clients.
In general, the RDR has achieved positive outcomes, with standards rising and consumers benefiting from better and clearer information; however, it also led to what is called the advice gap, whereby many financial professionals and firms no longer serve clients with portfolios worth less than £100,000, as they say the costs are too high. As a result of the RDR, many financial advisers now impose investment minimums, with an article in the Guardian reporting on the effects of the regulation on IFAs.
Mind the gap
The Financial Conduct Authority (FCA), which regulates the market, wants to investigate the advice gap. A 2015 study indicated that more than five million Britons would pay for advice, but not the amount most IFAs or investment firms currently charge. The same research also indicated that nearly 15 million Britons who would benefit from financial advice are not able to cover the cost. Senior analysts believe the RDR did not cause these problems; instead, it highlighted inefficiencies in the financial market. It seems that greater efficiency is the key to helping more clients, with some professionals probably not realising that back office systems for IFAs would streamline their workload.
If you are curious to know more about back office systems for IFAs, it would be a good idea to consult professionals in the field who are up to date with the latest technology and developments and can advise accordingly.
Online services driven by algorithms are another possible solution, as these would require less human input; however, most clients who would benefit from technology-formulated guidance probably need to improve their financial literacy first. A combination of human analysis and computer technology could therefore be a source of practical and low-cost advice for those who are unable to afford it at present.