Will simplified advice be abandoned?

With the Mexican stand-off over regarding the release of the FSA’s consultancy paper on simplified advice, we now have the guidance in concrete that this distribution channel will not be a quick win for the industry in gaining the middle market post RDR implementation but a service operating under the ever growing close scrutiny of the regulator with all the risks attached.

Although we knew that simplified advice would always be included with the adviser charging, remuneration and recommendation rules (COBs 6.1A & 9.2.1R) and it would not be a basic advice channel working outside the RDR, the fact that authorise and validate is key and the regulators tendency to bayonet the wounded may see off any valiant attempt at pioneering a state of the art streamlined distribution channel. Indeed we are already seeing smaller outfits such as Churchouse Financial planning throw in the towel on simplified advice.

The main problems may lie in the fact that clients who may want to orphan themselves post RDR due to knowledge of remuneration levels paid or a savvy understanding of the changing market landscape, also NEST auto-enrolment schemes give clients all they perceive they need for pension planning, the Money Advice Service is viewed as a conduit to financial planning and the fact that 49% of the ‘mass market do not have the means to invest may result in simplified advice being abandoned.

Yet Life companies, banks and the larger IFAs and wealth managers may still want to explore cutting edge technology that brings financial advice to the door step of mass market clients. The problem with this is the design and implementation may result in hybrid model which doesn’t actually serve the very market simplified advice was targeted; the potential RDR disenfranchised investor.

If simplified advice is to work, what truly needs to happen is a ‘flip funnel’ approach where the service (particularly technology) is designed around the clients not the business needs, the regulators need to become more inclusive in a ‘co-build’ strategy allowing both the market and the regulator input into service design, and certainly higher professional qualifications need to be employed for any individual delivering simplified advice to ensure market professionalisation is carried forward.

Bold and expansive technology driven to the customers needs should have emphasis on simplification such as transparency and simple product with initiatives such as the Social Market Foundations product ‘Kite marking’ adding great value to understanding and knowledge of product features and benefits.

Indeed simplified advice also gives a marvellous opportunity for the industry to address the elephant in the room, that of behavioural economics and how clients’ irrational behaviour may once and for all be addressed by a standardised service for the very market that desperately needs financial planning.

Regulators nudge strategy applied with industry communication and soft skills geared to coaching clients down a path of self discovery can lead to real understanding of how irrational biases such as inertia, procrastination and mental accounting can be managed and financial capabilities improved.

Easier said then done? Well, in other industries we are seeing early signs of how regulators and the market can come together in the US healthcare system, with, for example, President Obama’s radical new regulation to make healthcare affordable on a mass-market basis. Although heavily subsidised, this continues to result in pushback from the industry itself, but with regulatory nudging Americans may finally be able to enjoy something similar to the marvellous UK NHS system that we often take for granted.

More time and getting heads around the key issues from all corners of the market is therefore needed to really assess the benefits of simplified advice.

Yet with independent, restricted, specialist, generic, execution only, basic and primary advice being toyed with by most market participants in some shape and form and the RDR final straight ever looming, we may see simplified advice being placed on the back burner, or indeed abandoned. I hope not.

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