The review has not been well received in many quarters. We agree with the critics.

The conclusions seem to be mostly of the ‘the FCA should do’, ‘further exploration’ and ‘more consultation’ type and, frankly, a bit weak considering the effort that has been expended.

For example, the recommendation to create a list of new terms for guidance and advice seems to us to miss the point. This was already done by the regulator around the time of the RDR.

Then there is the recommendation to create a new rules and nudges quango! No comment needed.

Just about the only firm recommendation was that the FCA should not introduce a long stop limitation on complaints but the FCA had already reached that conclusion!

More fundamentally, we think there is a question mark over whether the basic premise of the review is even valid.

The principal driver for this review was to address what is commonly referred to as the ‘advice gap’. This phrase has gathered strength since the advent of the RDR – with many in the industry making doom laden claims that the banning of commission on investment products would lead to a significant number of consumers having less or no access to financial advice. Those industry pundits are now revelling in a ‘told you so’ moment. We think that view might be misplaced – does the advice gap really exist?

Going back a few years further than RDR, there was much concern about the savings gap in the UK. This was defined as the amount of money people need to save in order to maintain their lifestyle in retirement and was undoubtedly a real phenomenon, based on real data. Regrettably, the savings gap has not gone away in the interim, it has grown.

In September 2013, a Government study of UK savings rates revealed that up to 13m people were heading for a drop in living standards when they retire. This was 2m more than had been thought to be the case and represented around one third of the workforce. Auto enrolment is expected to help around 1m people bridge the gap, leaving a staggering 12m people with a problem.

Exactly one year later, True Potential and the Open University, conducted a survey of over 2000 people and found that 40% of the respondents were not currently saving towards retirement at all. Although a significant number (79%) thought pensions were poor value for money, it was an inability to save rather than a proactive choice that drove the lack of contributions – they had no spare income!

As recently as September 2015, Deloitte confirmed that the savings gap is getting bigger. They project that the gap could hit between £350bn and £374bn by 2050, a 9% increase over what they estimated as recently as 2010. It is easier to understand the significance of these huge numbers when you consider that this means that UK savers will, on average, have to save £10,000 more each year to retirement to close the gap. That’s a big ask for most of the population.

The reasons for the savings gap increasing are complex and partly due to increasing costs of retirement – health care, long term care, a growing (and aging) population straining the ability of public funds to keep up. But when we look at the other side of the equation, namely what is stopping people saving more, the reasons include –

• Lack of spare income;
• Levels of personal debt;
• Low interest rates providing little incentive to save;
• And not least, a lack of faith in financial institutions and products – especially since the Banking crisis and mis-selling scandals in recent years. A point that was confirmed by the FAMR in its investigations.

But here’s the thing! Nowhere, in the studies mentioned above or elsewhere, is the savings gap attributed to the inability to access financial advice.

Are there too few advisers?
Although many advisers and firms did disappear around the time of the RDR, there is no evidence that there is a physical shortage of advisers. Research by Towers Watson on behalf of the regulator found that there was a demand for around 25,000 advisers yet a total of 30,000 advisers active in the market. The FCA concluded that “There is ‘little evidence’ that the retail distribution review (RDR) has caused an ‘advice gap’ …”. The regulator went on to state, “… the RDR had revealed the true cost of advice and that in some instances ‘has led some consumers to consider the extent to which the advice they receive represents value for money. This is not necessarily a bad thing. For many consumers, the decision that advice is not worth paying for at true cost may be the right one …”

Demand for advice might well have increased since the mandatory requirement for advice on transfer values exceeding £30,000, and not all advisers are qualified to give such advice. However, there is no evidence that people cannot find an adviser when they wish to use one. The problem seems to be more that many people do not wish to use an adviser.

There are probably four types of consumer who do not access financial advice –

• The DIY consumer
  … these people invest on their own behalf, perhaps typified by the customer base of D2C firms such as Hargreaves Lansdown and Nutmeg. There is no advice gap here.
• Advice is not good value
  … these consumers think that financial advice is too expensive in relation to its perceived value and choose not to seek advice. There is no advice gap here, just a personal choice. But there is an opportunity for firms to reach out to and persuade these people of the real value of advice.
• Cost is disproportionate
  … those for whom the cost of advice is disproportionate to the level of their investment or savings. There is no advice gap here – it is an entirely rational and correct decision not to take advice. But there is an opportunity for firms to create a level of service that would be proportionate to the needs of these consumers.
• Cannot afford the costs
  … those who genuinely cannot afford to pay for advice – and probably have little in the way of finances that requires advice and have no spare income to save.

It is undoubtedly true that some of those consumers in the last three of these categories would have engaged with ‘advisers’ in the pre-RDR world but, in reality, they were often sold a product rather than advised. And many of those products that paid sufficient commission to warrant the adviser’s / salesperson’s efforts were high charging to the extent that those same consumers are no longer able or willing to pay the same ballpark amount now that it is out in the open, instead of obscured by the ‘My commission is paid by the provider, and does not come out of your investment Mr Client, honest!’ type of conversation that was not uncommon pre-RDR.

It used to be accepted wisdom in the industry that life insurance was sold not bought and that probably had a grain of truth. However, the related mindset that it was better for consumers to be sold a poor value or unsuitable savings plan rather than have no savings at all was always much more difficult to justify. Especially in light of the number of such plans that were surrendered early leading to the consumers suffering heavy penalties and loss of money. The data on persistency rates warrants an entire article but, alongside a whole variety of data, the FCA report on persistency published in January 2013 included these telling figures …

Proportion of personal pension plans still in force after four years …

Sold by company representatives – 45.1%

And just in case IFAs reading this start to feel superior, the figure for plans sold by IFAs was 45.3%!

So, there is definitely a savings gap, but maybe what is constantly referred to as an advice gap is really a sales gap. If so, then the FAMR might be tilting at windmills!