With the Retail Distribution Review (RDR) now being implemented almost six months ago, the UK Life, Pension and Investments markets are now starting to experience the real impact of one of the most significant reforms in the retail investments market. This blog is the third of four, which seeks to provide stimulus for discussions on strategic challenges for the different market participants in the post-RDR world.
This blog focuses on opportunities and challenges in responding to the emerging advice gap for the mass market consumers.
Currently, mass market consumers without access to investment advice create an opportunity to innovate. Winners will be those that are able to develop delivery models with lower cost-to-serve without diminishing the customer experience.
The Financial Services Authority (FSA) official statistics estimated a 44% reduction in bank advisors, and a 20% reduction in Independent Financial Advisors (IFAs), tied and multi-tied advisors between December 2011 and December 2012. The reality is worse. While the FSA's figures include the previously announced decisions of Barclays, Lloyds and HSBC to pull out of mass market advice, subsequently, in the last few months, Aviva and AXA have both also announced their decisions to withdraw from advice, which affected Coventry Building Society, Co-operative Banking Group and Clydesdale and Yorkshire Banks.
A number of key issues will arise. Firstly, current investors who no longer have access to advice may make inappropriate investment decisions. Secondly, prospective investors may feel that investment is too complicated, and hence, do not invest at all, resulting in an increase of the current 'savings and retirements gaps' in the longer term. Finally, banks will lose their referral model from their retail to wealth management arms and the opportunity to build strong relationship in the early part of the customer lifecycle.
Whilst economic and regulatory issues and challenges on providing guidance or simplified advice remain, a number of innovative companies are trying to exploit this opportunity by introducing new advised business models. Key levers include getting customers to conduct more fact-finding activities themselves through platforms such as 'Advice Made Simple' or 'rPlan', and seek more automated online advice through platforms such as 'Money on Toast'. Platforms such as these focus on increasing the efficiency and effectiveness of the advisor and thus reducing the 'breakeven' level of assets required to make providing guidance or advice economic.
There are also companies focusing on other levers. For example, in the non-advised channel, companies are increasing customers' awareness by providing information and guidance (e.g. Hargreaves Lansdown), or developing alternative distribution channels (e.g. workplace). Some product manufacturers are also contributing by developing simpler products or packaged solutions.
Read our previous blogs in the series:
1.
Likely future landscape for intermediary platforms
2.
Efficiency improvements and effective segmentation is the remedy
for the advised channel
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