Seeking Out Good Financial Advice: ‘If it sounds too good to be true, it probably is'
As noted in my piece published in February, 2020 was a year of further growth for 2plan despite pandemic turbulence and the relentless challenges that resulted. However, looking beyond this success, the industry remains in crisis. There are a number of issues at play here.
As noted in my piece published in February, 2020 was a year of further growth for 2plan despite pandemic turbulence and the relentless challenges that resulted.
However, looking beyond this success, the industry remains in crisis. There are a number of issues at play here.
Firstly there is a higher demand for professional advice than ever before, yet the size of the financial adviser pool is shrinking at an alarming rate - from over 250,000 30 years ago to c24,000 today. Advisers are either leaving the industry or are put off joining due to what they perceive as unlimited, unknown, uncontrollable liabilities with regards to the Financial Services Compensation Scheme (FSCS) and the ever-increasing regulatory pressure on costs. There’s also a distinct lack of investment in the profession to attract new graduates. Additional pressures brought about by Covid restrictions and remote working have added further strain.
Unfortunately today the complexity and upkeep required to be and remain fully compliant, regulated, and solvent as an adviser means that some financial advice options aren’t all they seem. Some firms bypass best practice and consumers turn to them as a lower cost option. What’s more, over the years consumers have been enticed into purchasing unregulated products or investments with bold promises of ‘get rich quick’ schemes and grand returns that have never come to fruition. As an example, additional freedoms regarding personal pensions have resulted in many pension pots being transferred to scam or high-risk investments and significant amounts of money has been lost. With interest rates currently unfavourable for savers many are tempted to seek out promises of higher returns and are at increased risk of falling for scams.
It doesn’t take long to see why this causes significant damaging knock-on effects across the wider industry.
The Financial Services Compensation Scheme (FSCS) - the organisation who is called on when people feel they have received poor advice and suffered a financial loss - is funded by the financial services industry. An annual levy is paid by firms authorised by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) with the charges dictated by the FSCS. The levy is spiralling out of control and is arguably now one of the biggest threats to the industry that funds it. The forecast for 2021/22 is that the levy will be £1.04bn; a 48% increase on the previous year. Without significant and urgent change, this is likely to keep on rising year-on-year.
Our profession has been holding a white flag for years, asking for a better way to both protect consumers and safeguard the industry. We are reaching boiling point, with many firms now set to collapse.
My belief is that we need to work alongside consumers to help them understand why seeking advice from properly regulated professional advisers is a win-win for everyone. There simply is no shortcut to financial stability or to wealth. Get rich quick schemes almost never work. If it sounds too good to be true, chances are it is.
Consumers need to understand there are good advisers, bad advisers, and then much worse out there. Unfortunately where there is money (and often a lot of it) then there are people who want to take it – and nowhere more obvious than people willing to invest in seemingly wonderful get rich quick scams. Think of it like this - if we went to a car auction and got a good deal on an old banger with no warranties, took it home and it broke down, we wouldn’t be able to get our money back as we’ve accepted the risk. With this in mind the consumer needs to be better educated on how to pick out the good, regulated advisers who will be open with them about risk and only explore regulated options where that risk is managed.
The consumer is regularly told - via TV or radio adverts for example - how they can complain if they have lost money or think they have received poor advice which has resulted in a poor outcome. This is the wrong approach. We need more educational initiatives championing good advice and teaching consumers how to seek it out so that we establish a mindset of ‘prevention rather than cure’ in financial services - not the other way around.
There are other issues that can be addressed such as teaching money management and finances better to children early on at school, and this is another strategy that can help longer term.
So what will happen if things don’t change? Firms will close, adviser numbers will continue to diminish, investors will stop investing, Professional Indemnity providers will stop offering cover (so advisers cannot trade), financial instability will ensue, and there will no longer be any consumer protection as the well will be dry.
This is a bleak picture. I believe there is a way out, and it has to start with consumers understanding the value of good, proven, regulated financial advice - and knowing what to look for to make sure they find it. My concern is that currently the default thinking is that financial advisers are underhand, which isn’t helped by the prevalent messages from the FSCS. We need to turn this around and let the regulated advice providers lead the way, demonstrate their worth and regulatory commitment. Only then can we nudge out the less desirables who are causing so much damage to the industry’s reputation and in turn, its wellbeing and longevity.
I sincerely hope we can pull together and effect change. In my role at 2plan I am certainly keen to do whatever we can as an organisation to help create an industry that is given the credit it deserves and one that has a bright future with the best interests of the consumer truly at heart.
About The Author
Chris co-founded 2plan Wealth Management in 2006 and over the last 17 years has sat at the forefront of one of the UK's most exciting wealth management companies. Chris is responsible for strategic development and growth of the business, leading the management team, and the overall profile and brand of the company.