How do we close the advice gap?
That’s the million-dollar question I’ve heard debated time and again since I joined Money Marketing.
The consensus is that artificial intelligence and the introduction of new technology will free up advisers’ time and enable them to take on and serve more clients.
But could it be the banks that hold the key to closing the gap?
After the Retail Distribution Review was introduced in 2012, most UK banks stopped offering financial advice to all but their wealthiest clients. This was mainly due to the higher risks and costs now involved.
If this means that more people can get access to financial advice, it’s not necessarily a bad thing, says Ball
Their departure created a big opportunity for Hargreaves Lansdown, St James’s Place and other wealth managers. But the tide could now be turning.
In August, HSBC announced plans to double its assets under management to £100bn and become one of the top-five wealth managers in the UK in the next five years.
“In order to fulfil this vision, we are growing our national team of wealth advisers and relationship managers at scale,” it said.
But it’s not just HSBC. Barclays and Lloyds have also made moves back into wealth management. And, according to two experts, that can only be a good thing.
Mass-affluent market
Many advice firms no longer touch anyone with less than £250,000 in assets because it is not profitable for them to do so.
So, could banks help solve the problem? Hoxton Wealth chief executive Chris Ball believes so.
We should embrace the banks with open arms if we really want to close the advice gap
“These banks are focusing on the ‘mass affluent’ market — as in people with £75,000 to £250,000 in deposits,” he says. “There’s a massive opportunity here, because this group of clients need advice nearly as much as the ultra-high-net-worth individuals do.”
NextWealth managing director Heather Hopkins agrees.
“NextWealth research shows that the average portfolio size for financial advice firms is over £400,000. There is a huge, untapped market out there,” she says.
“One of the challenges we face as a nation is that people don’t seek out advice. The more firms that shout about the value and availability of advice, the more people will seek it out.”
The resurgence of the banks may put some wealth managers’ noses out of joint, but Hopkins says they needn’t worry.
Many advice firms no longer touch anyone with less than £250,000 in assets
“Demand for advice far outstrips supply, so I don’t see banks competing with traditional wealth managers.”
Ball agrees that banks do not pose a threat.
“If it means that more people can get access to financial advice because the banks make it cheaper to do so, I don’t necessarily see that as a bad thing.
“As a profession, we should really focus on the positives of what we are doing and not the negatives of what the banks are doing.”
Independence
Ball thinks the banks will have tied products, and “a lot of it will be around product sales rather than giving proper, holistic financial planning”.
The resurgence of the banks may put some wealth managers’ noses out of joint, but Hopkins says they needn’t worry
Therefore, his message to wealth managers is simple: “Keep doing what you’re doing — giving great, independent financial advice. That independence bit, I think, will be key.”
The Lang Cat consulting director Mike Barrett agrees.
“For these types of services, advice is rarely the product. It’s about the banks wanting to sell more of their own funds.
“As a consequence, the vast majority of the advice profession should have nothing to fear from these offerings.”
When I spoke to the FCA’s Nick Hulme, head of advisers, wealth and pensions, he told me the regulator was open to banks entering the sector.
“Financial advisers can do their bit — they are already active in the market and very knowledgeable.
It’s not just HSBC — Barclays and Lloyds have also made moves back into wealth management
“If there are other players that are going to come in to help reduce that advice gap, which this country really needs, then we’re agnostic to who that is.”
Hulme added that the regulator was “absolutely on board and behind anyone with the right intentions and motives”.
As for an old friend we haven’t seen for a while, we should embrace the banks with open arms if we really want to close the advice gap.
Dan Cooper is news editor
This article featured in the November 2024 edition of Money Marketing.
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The world now is a very different place from the old days when financial “advice” from a bank amounted to little more than flogging one of their own poor quality bancassurance products incorporating heavy charges, dog funds and zero after-sale service. Do any of the banks have a clear idea as to just what the FCA means by “the right intentions and motives” and how they’ll be expected to meet them?
I will put aside my usual observation that we have another article about the “advice gap” which does not define what is meant by “advice gap”.
Instead, while agreeing that the withdrawal of banks from the advice market was significant (though my impression from many readers was that bank advice may not always have been good advice…) I would observe that, for banks, the question of giving advice may be one of relative profitability – is it more profitable to have £75,000 in deposits earning the bank net interest income, or is it more profitable to provide advice and products that may, or may not, generate profit for the bank. And what are the implications for bank capital? Perhaps banks may not rush too quickly without weighing these things up – and what that means for the client.
Can you just imagine the banks fulfilling Consumer Duty? Are we to imagine that they will provide advice for free? Will they be allowed to take commission? If not how willing will bank customers pay a fee? If current situations in anyway mirrors the past, then it will be a good thing for independent advice as those who have been bitten by a bank will come running to an independent. But of course, all this assumes that there is indeed an advice gap. Those in the so-called gap fall into 3 categories. 1. Those without the wherewithal to benefit from advice. 2. Those unwilling to pay a fee. 3. Those who prefer DIY. For many the most appropriate advice would be to reduce debt.
One wonders if those who use a stockbroker or other professional are counted in the gap? In fact, how is the gap counted?
Banks love anything which generates cash without weighting their balance sheets!
Unfortunately they forget the need to be honest and explicit – see any of last 30 years for misselling..
Yet another tragedy is unfolding, and a big one, that of covert commissions paid to car dealerships without disclosure to the buyer in fact, the CoA judgement affects all similar situations as it affects the price paid overall without disclosure – said to be ILLEGAL!!
This is important as illegality has no time limits like civil contracts – 6 years back, or 6 years from time of discovery like negligence – so the compensation may be very great indeed. I will pretend not to think about the mortgage broker market… BIG Montezuma…
I have, personally, recovered 2x commission/fees from, 1. car purchase, &, 2. RTA where I demanded half the introduction fee the broker got from the lawyer etc. This very common between estate agents and conveyancers – again, BIG bucks…
One entity which has been deafeningly quiet is….
yep. you guessed… FCA. They are supposed to be the regulateor – please, don’t have a heart attack laughing – too funny, but so far….. sshhhh…
As I have banged on about –
One last bit of cheer for FCA… does this judgement affect the double dipping scandal, sorry FCA sort of approved extra fees allowed, sort of, as staring at deposit statements is more onerous than stock piscking apparently… errm… sort of…?
BTW… I again note the inquiry into it conducted by… FCA was meant to report by April/MAy this year.
In July 2023 alone, FCA’s own numbers, the DD thefts amounted to £76M!! All this in addition to overt fees and charges.
It would be very sad, yet funny also, to see the FCA appealing the CoA judgement to save its’ own jobs and bonuses… sorry, reputation, sic, maybe this is one situation even the Chairman can’t be marked by his own lickspittles… or was that the (self proclaimed unaccountable) CII… apologies, I’m just dazzled by the great & the good…