There have been many savings and pensions shake ups over the past few years, all pushed through by a government who wants to encourage us to save. However at the same time there’s been a fundamental change which has, in my opinion, had an extremely damaging impact on the mass market’s attitude to saving: the Retail Distribution Review of 2013. Savings advice has never really been free, it was wrapped up as commission to your adviser, but most people who went into their bank just didn’t realise. But what the review and new legislation did was limit access to the majority of the UK population who simply can’t afford to pay upfront for advice.
Many consumers don’t want (or feel they don’t have the funds) to pay for full regulated advice and just want informal guidance. The problem for banks is that this is very expensive to service and at a time when banks are looking to streamline costs and question the importance of their branch network, it’s not really deemed essential. This week, RBS announced that it is cutting the jobs of 220 face-to-face advisers, as it switches its customers to an online automated service. Personal advice will now only be given to customers with £250,000 to invest.
The Financial Conduct Authority (FCA) has just completed its Financial Advice Market Review (FAMR) and states that up to 16 million people could be trapped in a ‘financial advice gap’. Basically they need advice but can’t afford it. The FCA are advocating Robo-Advice. It sounds very forward-thinking but it’s not really about an actual robot taking the place of an advisor in a bank, it’s about developing smart algorithms for use online. In simple terms it’s a program to allow consumers to go online, answer some questions, and receive financial help without having to pay for individually-tailored suggestions.
Robo Advice is already a reality in the US with popular platforms like Betterment and Wealthfront. Here in the UK, LV= have launched a similar offering, so whilst the title ‘Robo Advisor’ might initially scare the hell out of people, I doubt it will be too long before it becomes mainstream and we see other financial services products and services moving to more automated solutions.