The investment industry is still stacked in favour of the providers at the expense of consumers. To coincide with today’s deadline for the FCA Consumer Investments Market consultation – which aims to make the consumer investment market work better – we outline where we believe the FCA should focus their efforts to help consumers make effective investment decisions.
For too long consumers have got the rough end of the deal, while many wealth managers continue to enjoy an industry too heavily stacked in their favour.
To rectify the industry’s shortcomings, we believe the FCA should consider regulation to cover transparency and consumer education – to encourage competition, eliminate poor practice and address the high ongoing levels of investor inertia. In addition, providers should be encouraged to extend their advice models to cater for consumers’ one-off needs as opposed to requiring annual advice as a given.
Key issues that should be addressed
Regulation should ensure that consumers receive comprehensive and unambiguous information on the total costs of investing, in a format that is consistent and easily comparable across providers. A consumer’s decisions shouldn’t depend on them needing to ask the right questions in order to establish exactly what they would pay/are paying.
There is currently no consistent set of information made readily available for a consumer when comparing discretionary investment management services. This makes it hard for them to understand how each service differs. Many websites still do not clearly address fees, particularly ahead of any commitment.
This forces the prospective consumer to seek the information directly and relies on them knowing which questions to ask, rather than having had it laid out for their review and comparison.
Education, particularly in the form of free, no-obligation financial guidance and information, is absolutely critical to consumer understanding and to helping address the lack of financial confidence. Modern technology, including online tools, can provide a vital part of the solution. It is now much easier for consumers to assess their goals and explore the relevant investment risks to help secure an outcome in line with their needs and circumstances.
Regulatory support for firms on providing such services – in particular tools that assist consumers in assessing returns and the various factors at play in meeting their financial goals – would increase the proliferation of such services and consequently improve investors’ confidence and experience.
This would boost sentiment more broadly by addressing, to some extent, the current information asymmetry between providers and consumers, in turn leading to improved consumer confidence and trust.
The FCA should also help consumers be more aware of how the industry landscape is changing by highlighting practices that are now outdated or could be improved upon. Retail consumers are still encouraged by the established industry players to focus on performance history, reputation and ‘the comfortable norm’. This diverts attention from the more innovative, dynamic and technologically enabled service providers that are now broadly available across wealth levels.
If the FCA is more supportive of significantly improved transparency and consumer education, prospective financial consumers can be more proactive and educated in the choices they make and will benefit from the increased competition.
The issue of simple advice
Many investors simply do not need an ongoing advice relationship. Simple or ‘pay as you go’ advice is often much more cost-effective and a more suitable solution.
Despite this, while 94% of advisers offer ongoing advice services, innovation in the area of simple advice has been very slow due to provider concerns about costs and liabilities if things go wrong.
If there are concerns about the associated liabilities, specific regulation concerning redress for simple advice could help clarify matters. This would help speed up provision of these services and could be beneficial to consumers and providers alike.
Ultimately, offering retail investors the choice of appropriate, simple advice is a critical element to unlocking access to financial planning for more consumers.
We have submitted the points outlined above to the FCA for their consideration. Our aim is always to make investing more transparent, more accessible and easier to understand for our clients. There is no good reason why these values cannot be more widely embraced across the investment industry.
Please note, the value of your investments can go down as well as up.