When the FCA published its retirement income advice review findings earlier this year, I wrote, among other observations, that advice needs to be available to more people approaching retirement. At this stage, issues aren’t only complex, they’re individual with long-lasting consequences if the right decisions aren’t made.

It’s where the most urgent need for help is.

I added that the FCA’s Advice Guidance Boundary Review, needs to help find a solution so more consumers can access advice at both accumulation and decumulation.

And it’s why one of the findings from the latest lang cat Advice Gap report, now in its sixth year and sponsored by abrdn, stands out for me, and perhaps points to a greater challenge for the industry.

As the report explains, researchers presented four types of service to four groups of consumers with different needs. Two of the service types were the existing regimes of full holistic advice and guidance (providing information). The other two types were the proposed new regimes highlighted in the regulator’s Advice Guidance Boundary Review - targeted support and simplified advice.

The findings reveal that each service’s net appeal to consumers is broadly similar. Furthermore, when the numbers were analysed across age and gender, there’s very little difference in preferences.

These insights illustrate, in stark terms, that people just want help with their money and are indifferent to what that support looks like.

As we know, there’s a fundamental difference between guidance and advice, so if the FCA introduces targeted support and simplified advice, we need to make sure consumers understand what the differences are.

As the Advice Gap report outlines, the UK has a serious advice gap and the industry needs to make strides to reduce it.

But before any new regime is introduced, we need to find a way to clearly articulate what the proposed types of help are and what they mean. Targeted support, for example, has the potential to make a real difference for many people but it’s not the gold standard that is full holistic advice.

Articulating the value of a holistic advice service

There’s clear evidence within the Advice Gap report that those clients who receive holistic advice have never been more satisfied with the service.

For the new simplified regimes to be successful, they should not only deliver good outcomes, but do so in a way that promotes the value of full holistic advice.

Targeted support, for example is at its core a ‘personalised’ nudge but the nudge needs to be supported with messaging to highlight the benefits of a full advice service in a way that encourages people to go a step further and seek advice if they need it.

Examples of how the benefits of advice could be built into the journey for those consumers receiving targeted support include:

On top of straightforward communication, the industry also needs to somehow measure how many consumers go on to pay for a full holistic advice service. Otherwise, the advice gap is far from being solved.

The impact of the Consumer Duty

One other finding revealed in the Advice Gap report has already been well publicised. It’s that, of the 200 advisers who contributed to the research, 55 per cent say they’ve stopped serving some existing clients as a result of the Consumer Duty.

The figure suggests that the rules have widened the advice gap, which may be true. With hindsight however, it shouldn’t be a surprise that firms are taking time out to review their services under the rules and targeting those who benefit the most from their proposition. This process naturally leads to identifying some clients who don’t benefit as much.

We have to hope this issue is temporary as there’s no shortage of consumers needing help. Once the Consumer Duty beds in and processes become more efficient, adviser firms should have as much capacity as before. We also need to remember that the Consumer Duty was not designed to address the advice gap but to raise standards across the industry.

Whichever way we look at it, the advice gap needs to be addressed and it’s the collective responsibility of the industry to find a way to support advisers with efficiencies and to help develop more cost-effective advice solutions. And as advisers and consumers pointed to in another one of the findings in the Advice Gap report, addressing the issue needs to be led by the government.

The best chance in a generation

The sixth Advice Gap report from the lang cat is an extensive and invaluable piece of research and insight into the subject.

Now, with this evidence, and as we anticipate the FCA’s response to the Advice Guidance Boundary Review, the industry probably has the best chance in a generation to come up with solutions to help solve the advice gap.

In its Financing Growth paper, the new Labour government has also stated it’s supportive of the regulator’s proposals in its policy paper and wants to see them progress.

The momentum therefore is with the industry and government together that the advice gap can be resolved.

And although new regimes, following the Advice Guidance Boundary Review, need to be better articulated and tested so that consumers can differentiate between them, these services should provide them with more choice and give them the help they need when they need it.

To read all of Alastair Black’s blogs, go here and to download the lang cat’s Advice Gap report 2024, go here.

The value of investments can go down as well as up and your clients could get back less than they paid in.

The views expressed in this blog should not be regarded as financial advice.