Will streamlined advice help close the advice gap?

Streamlined advice includes both simplified advice, where the adviser sets out the boundaries of the service provided, and focused advice, where the client stipulates the boundaries of the advice they are seeking.

Streamlined advice has the potential to make workplace advice more affordable

Lower cost retirement planning

In some respects, streamlined advice mirrors full advice. In line with the new definition of regulated advice, both include a personal recommendation and are subject to suitability requirements.

But the FCA hopes that advice limited to one or more of a consumer’s specific needs, and not covering unrelated wider circumstances, may be deliverable at a lower cost, making it more attractive to a wider range of customers.

Streamlined advice has the potential to make workplace advice more affordable, supporting retirement planning with regard to fund choices or contribution levels for those members who are not prepared to pay for full advice.

The need to narrow the advice gap is arguably even greater these days, as savers grapple with organising their future finances against a backdrop of Brexit and wider geopolitical uncertainty.

But there is a disappointing lack of evidence to show that measures the FCA, HM Treasury and others are taking are prompting actual change ‘on the ground’. So the stakes are high for streamlined advice.

Is there a demand?

Encouragingly, research based on 113 advisers has found there is a strong interest in starting or continuing to use streamlined advice.

But this positivity was conditional on the FCA offering sufficient clarity between streamlined and full advice to remove the perceived associated regulatory risks.

Advisers certainly believe there is a demand from clients, with a huge 80 per cent expecting an increase in calls for more streamlined services.

However, with regard to meeting this increased demand, the outlook is mixed. Of the 37 per cent of advisers who currently offer streamlined advice, nearly six out of 10 are in favour of extending its use.

Of those who do not currently offer it, future intentions are evenly split, with 38 per cent saying they are interested, 32 per cent not having made up their minds and a further 30 per cent who are not interested.

Encouraging younger people to seek advice is often seen as a major challenge. Promisingly, almost seven out of 10 advisers surveyed thought streamlined advice could be a useful method here, suggesting widespread availability could help close parts of the advice gap and engage workplace members at younger ages.

How it could be used

While the key barrier is regulatory risk, cited as the largest by 62 per cent of advisers, a further 22 per cent were concerned about the time required to develop and market a proposition. Lack of consumer awareness was mentioned by only one in 10.

The FCA set out a range of possible scenarios where streamlined advice would be appropriate. Our research found that 76 per cent of advisers think it likely that they would use it for fund choices for employees who have been automatically enrolled into their employer’s scheme.

This was closely followed by 72 per cent of advisers likely to use streamlined advice when clients had a small sum to invest.

In a separate consultation, the FCA also considered whether advice on defined benefit transfers could be offered on a streamlined basis.

Its conclusion that this would not be appropriate is sensible, as advice in this complex area really needs to look at the individual’s wider circumstances and retirement needs.

At the time of writing, we are awaiting final guidance from the FCA on streamlined advice. Let us hope it provides the clarity advisers need to expand their services and that we will see some welcome, tangible progress in closing the advice gap, including in the workplace.

Steven Cameron is pensions director at Aegon