The Financial Conduct Authority’s new ‘Consumer Duty’ for banking and financial services, which takes effect from July 31, is a commendable effort to put customers first. Through a new ‘consumer principle’ looks to deliver better outcomes for retail consumers by placing greater responsibility onto firms in the industry. That’s certainly welcome – after all, better results for clients should always be the ultimate goal of anyone in the industry. There are, however, other pressing challenges for the sector that the FCA could look to address next.
As an investment and financial advice firm that works with over 20% of UK financial advisers and with £25bn of assets on our platform, my firm True Potential has swathes of up-to-the-minute data on client behaviour and attitudes. We can see a persistent savings gap that continues to grow wider. Advisers are the industry’s canary in the coalmine – they can see what the future of household finances looks like and are vital to reversing the trend of declining financial resilience.
That is why the next problem that the FCA needs to address is the looming crisis of an ageing pool of financial advisers. As seasoned professionals near retirement, a dearth of fresh talent entering the field exacerbates an already concerning situation. Just 6% of financial advisers are under the age of 30, with the majority approaching retirement age. It is of the utmost importance that the FCA looks at ways to encourage an influx of a fresh generation of advisers, failure to do so will ensure that a significant knowledge gap will emerge within the industry in the years to come, which no amount of well-intentioned regulation will fix.
The lack of financial advisers is already having a noticeable impact on the UK. The abysmal savings rates among millennials is just one example of the need for the industry to be opened up to more talent. Our research shows that almost two thirds of millennials – those aged between 27 and 42 – have never spoken to a financial adviser and one in four are not saving anything at all.
This is a generational time bomb of people who are sleepwalking into a shock in later life. Without advisers to help to guide and encourage young people to start saving earlier, millions face having no safety net, making even modest financial goals such as going on holiday or covering an emergency expense more difficult. As millennials face deeper economic challenges than most of us can remember, such as soaring housing costs and inflation, stagnant wages, and mounting student debt, it is essential that the FCA takes a proactive stance in promoting responsible financial practices.
The FCA is 10 years old now and despite commendable attempts at reform of some areas through the likes of the Retail Distribution Review (RDR) and the Financial Advice Market Review (FAMR), the saving gap in the UK has continued to grow. As adviser remuneration shifted away from sales commissions and towards fees paid directly by clients that can afford ongoing advice, so too did the role of the adviser. Across the industry, it has become much more about servicing existing wealthier clients versus finding new ones with relatively small amounts to invest.
All is not lost, however. As a large and resourceful firm driven to play our part in tackling the savings gap, we created a head office team dedicated to finding and servicing younger clients looking to get started. Video calls and secure messages from people in their 20s and 30s looking to invest £50 or £500 are a daily occurrence and one that gives me confidence that the savings gap can be closed.
I’d urge the FCA to go further and attract a new wave of financial advisers into the industry to engage the next generation of retirees. It is imperative that the FCA adopts a holistic approach, combining effective regulation with proactive measures to bridge the advice gap and promote a culture of financial literacy. The FCA can further safeguard the interests of consumers and address the long-term challenges faced by the financial advice industry by using its powers to tackle these underlying issues head-on.
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