- UK savings rates are at record lows
- Quality financial advice is becoming increasingly harder to access
- This puts more investors at risk of poor outcomes
- evestor is pioneering the use of technology to provide good value advice to those who need it most
We all know we're not saving enough.
The number of people in the UK who currently make no savings provisions at all is increasing. Worse still, the latest report by the Office of National Statistics revealed, those who are saving are doing so at the lowest level since records began.
Action needs to be taken now to avoid a real crisis in the years to come. So, what is to be done?
The most obvious area of concern is the growing gap in the provision of financial advice.
The gulf between the few who can afford advice, and many who can't, is creating a 'them and us' system which has to be addressed and remedied.
The regulator and the robots
In its role as regulator of the financial services industry, the Financial Conduct Authority has a statutory objective to improve the lot of the consumer.
Its Financial Advice Market Review is designed to encourage more innovation within the savings marketplace to make it easier for people to start saving.
It is also designed to make it easier for financial services companies to provide products and services to customers.
What the industry has produced so far is a list of "me-too" services.
These enable a customer to go online, pick the product they want and then, after answering a series of questions on their attitude to risk-taking, agree an investment portfolio strategy for their money.
You pay anywhere from 0.75% to 2% per annum for these, often very slick services, via an app to keep it digitally real.
(This assumes you can work out the actual cost from the information given.)
The marketing, and indeed the narrative of these savings and investment providers, sounds like they are giving advice to the customer.
Many go even further and call themselves robo-advisers.
It's not only an awful title, it's also highly mis-leading.
The experts afraid to advise
To be clear, these services do not provide advice.
Instead they rely on the customer to make their own decisions - and ultimately to live with the consequences.
If it turns out that the customer's investment decision is wrong, then there is no recourse.
There are many reasons why the decision could be wrong - the customer may be better off paying down debt, building up rainy day funds or even not taking any investment risk at all.
All this can lead to poor outcomes for the customer.
What makes this relationship between provider and customer even more bizarre is that there is only one expert in the customer relationship.
Yet that expert is precisely the one who is unwilling to give advice. Instead it's the customer (the non-expert) who makes all the decisions and takes all the investment risk themselves.
The provider gets rewarded for managing their money so it is a great place for them to be – get paid regardless of the investment outcome but without taking any of the regulatory or conduct risks.
It is easy to see why, given these rich and easy pickings, providers shy away from giving regulated advice. They have been stung too often in the past with mis-selling fines and bad publicity to risk going there again.
Time to freeze the fees
I hear arguments that non-advised is the only way in which a mass-market solution can be delivered.
This is nonsense. At evestor we offer the best of both worlds.
The real reason is business model and internal risk appetite. You can almost hear the discussion at board meetings: "We don't have to give advice anymore. We get paid just as much for managing money and we won't run the risk of repeating past mistakes. It's all down to the customer!"
I also hear some advice industry advocates say that customers are happy to make their own decisions. I have no idea how the question is being framed but I would imagine that the answer is they would rather make their own decisions than pay the big fees that are currently levelled on them. Ongoing charges are up to 2.5% per annum – and that's on top of any upfront fees you might pay! And remember, these charges are being levied in a new environment of lower, single-digit investment returns.
Why give away such a huge chunk of your money just in fees?
Making investing affordable for all
The FCA recently announced a series of reviews, asset management being the main focus, to address the poor value for money being offered to customers.
This review is both welcome and far-reaching but it is only part of the solution.
Customers should have advice available to them regardless of the amount of wealth they have.
In fact, it is crazy to think that those new to investment, with limited knowledge and experience, are the ones who are best placed to make informed decisions themselves.
The reality is that the financial services industry simply does not think they are worth providing advice to.
From a regulatory or commercial point of view, there is absolutely no reason why affordable financial advice cannot be provided to those who need it most – that's the evestor manifesto.
Technology and online solutions are undoubtedly the way forward. These will play a major part in delivering affordable financial advice to everyone and at a price that is fair to the customer.
In the meantime, customers considering going down this route should consider very carefully exactly what they are paying for - and just how comfortable they really are making significant investment decisions on behalf of the so-called experts.