A Quiet Scandal
And what the regulator should do about it.
A great report this week from financial advice consultancy the Lang Cat on the topic of the “advice gap”.
For the uninitiated, the term “advice gap” refers to the over 90% of the population who do not currently receive financial advice for one reason or another.
The most common reason cited for the issue is that the cost to a firm of delivering regulated financial advice means that they can only work with clients who pay a certain level of fee. Put another way, financial planning remains a luxury product.
But wealthy folks are not the only ones who have questions about money. Quite the opposite, those most in need of the expertise of an empathetic knowledgeable adviser cannot hope to be able to afford to access financial advice in its current guise - instead reliant on free resource online, or perhaps pro bono support from a benevolent practitioner.
When the topic of the “advice gap” comes up, the most common solutions proposed are usually technological. So the theory currently goes, by augmenting my practice with AI I can serve 1,000 households rather than 100 - and all at a lower price point than I do at the moment.
And while technological advances undoubtedly offer a compelling and futuristic solution to this problem - I would argue that there are quicker, easier wins for the regulator in addressing the advice gap.
When a football team is 1-0 up in some “must win” game, usually in the latter stages of some major tournament, the last ten minutes descends into farce as any time the team with the lead wins the ball - they bolt straight for the corner flag.
When they arrive there, the attacking player will stick his backside out and try to shield the ball in the corner, as far away from his goal as possible, and run down the clock1.
Imagine how infuriating it is to see your team on the wrong end of this kind of ‘housery, and multiply the feeling by ten when you are trying to move money away from the average financial services company.
For an experienced practitioner, the act of providing financial planning and advice to individuals is actually relatively straightforward.
The bottlenecks in the process come when you have to deal with third parties - both in gathering information about a client’s position, and then implementing the advice that the client has agreed to action.
When a client signs what is called a “letter of authority” allowing an adviser to gather information about one of their pensions for example, this usually puts said pension provider on notice that the client’s assets may be moving elsewhere.
And this is bad news because almost every investment provider in the country charges based on a percentage of the value of the investments held with them. If the assets are transferred elsewhere, then the company loses revenue.
It is at this point that the “ball is taken into the corner”. Any option to obfuscate, delay, frustrate the process of transfer is on the table. Most ceding providers will try to run down the clock for as long as they possibly can, to maximise the fees that they can milk from a client’s pocket or maybe put a stop to the transfer entirely.
In just the past few weeks we have had to battle with:
An investment provider refusing to provide information by secure email or over the telephone, and insist on posting information (two weeks later) to our office.
An offshore provider refusing to make payment to a client for three weeks. Only after four hours’ of telephone calls with the provider, has the money finally been sent.2
Another offshore provider changing their mind three times on what paperwork was required to open an account with them.
A local government pension provider taking eight weeks to respond to a (very simple) request for information.
Countless ignored emails.
A call to the central customer service line of one of the biggest banks and investment managers in the country, that rang out after two minutes as no one bothered to pick up. Many of their clients pay tens of thousands in fees every year by the way.
A platform provider forgetting to include a client’s national insurance number on the transfer request from another provider, delaying transfer by two weeks.
And another platform provider refusing to appoint me as the named adviser on an account for three weeks - with the cheery consequence that the client now theoretically3 has to pay trading fees on the sale of the funds currently held within their model portfolio. Cost to client - £290.
This, at a very basic level, is completely wrong and I have just about had my fill.
You can tell a lot about a company’s culture by how it treats customers who leave. And based on my personal experience, as well as the average consumer’s I would expect - the culture of most financial services companies in this country is rotten to the core.
Make no mistake - this starts from the top.
Rather than try to grow by delivering a brilliant service to their clients, it is far easier for management to strip cost out of a business to protect margin - employing staff to customer facing roles, who have nowhere near the level of technical expertise to deal with a practitioner’s queries.
Instead of incentivising staff based on customer outcomes, and investing in their development - front line soldiers are paid a flat (probably insufficient) salary that only incentivises them to turn up, clock watch and go home.
Most business owners I know would crawl over broken glass for their customers. I just can’t imagine turning up to a job mentally prepared to do as little as possible. When did we stop caring?
As you might imagine, managing these issues and fighting to get the proper outcome for a client is a huge time suck. As a business owner, you can choose to accept the direct cost (hire someone to chase and manage these transfers for you) or you can do it yourself and accept the indirect cost, that your time could be better spent more profitably elsewhere than on hold to bloody Utmost.
If tech is going to ride to the rescue, that’s great. But we can at least try to get the basics, the easy wins, right now. Doing so would create massive productivity gains within the profession and allow us all to service more families, more easily.
So what should the regulator do?
Well, we sure as shooting don’t need any more regulation. Like the tax system, financial services regulation is a myriad of complexity and confusion. In my fourteen short years in the game I have seen the Retail Distribution Review, Treating Customers Fairly, Senior Managers & Certification Regime, MIFID and most recently Consumer Duty.
The principles of regulation are not difficult. Make sure advisers are sufficiently qualified individuals, who have a fiduciary duty to their clients to provide suitable recommendations and a service which represents value for money at a price point which is clear and obvious. And unleash holy hell on advisers who step outside the bounds of ethical conduct.
But like most things, the regulatory regime around financial services is too complicated by half. This definitely doesn’t help practitioners, probably doesn’t help clients but it sure helps compliance consultants.
The financial services profession, being the powerhouse of the UK’s economic growth that it is, has become somewhat of an oil tanker. The trouble with oil tankers though is that they become covered with barnacles who cling on for the ride.
We have ended up in the situation where a whole cottage industry has built up around financial advice firms, selling their wares based on the idea that if you do not engage their services then you will fall foul of one of the myriad of obscure regulations. The tail is almost wagging the dog at this stage, and there is enough cash in compliance already.
No, rather than try to dig our way out of this hole with more regulation - the FCA just need to do a better job of enforcing what regulation we have. Consumer Duty explicitly forbids the kind of behaviour I have experienced on my clients’ behalf recently, and I am confident that most advisers would be able to agree on who the worst and most consistent offenders are.
I’m writing this on Saturday. On Monday, the FCA are writing to every financial advice company in the country (including ours’) to gather data on a whole range of topics. Would it not make sense to try and get some intel from the small independent practices, on who on the product side needs a rap on the knuckles or worse?
I guess we will have to wait and see.
Have a lovely weekend.
Incidentally, this is the only point during a game of football where a defending player may commit something approaching Grevious Bodily Harm to his opponent without so much as a ticking off. Just one of those unwritten rules I guess.
The “best” bit about this one is that said provider also charges for telephone calls to their adviser servicing team, and therefore I have a £200 phone bill this month.
Pending the outcome of a complaint.
Now you can truly feel our pain my friend 😅