28 Sep 2018
Once RDR delivered the drop in the availability of financial advice that so many of us predicted, the Treasury came up with the Financial Advice Markets Review (FAMR).
With much of the FAMR Committee coming from the banks and IT providers, it came as no surprise that they suggested the void could be adequately replaced by Robo advice.
In its submission to FAMR in 2015, Libertatem suggested that Regulators and Advisers should concentrate on ensuring that the existing Professional Financial Advice Sector was healthy and growing, as there was no guarantee that this unproven distribution method was going to be able to provide a viable alternative. The last two years have demonstrated that we were right.
Whilst there is no shortage of enthusiasm, launches and PR filling the media, we cannot identify a single firm solely offering robo-advice that is trading profitably.
Nutmeg, the leader in this market, has reported that after five years of trading, it has just broken the £1bn barrier in Funds Under Advice.
From those funds it has derived only £2.6m turnover and has now announced losses of £9.3m – with accumulated losses of £30m. As Beattie said in her BT adverts “Hardly a raging success is it?”.
If Nutmeg is still incapable of making a profit with such huge financial resources behind them, what chance have the rest got in making Robo-advice work?
Unless Robo-advice can be made profitable it will cease to exist. Commercial pressures must eventually come into play as fund managers lose confidence in the process and stop investing.
As a comparison, the Libertatem’s modest membership has 100 times more turnover, is 200% more profitable and has three times the Funds Under Advice.
It begs the question if Libertatem’s membership had received the £30m capital injection proffered to Nutmeg, how much more could it have grown?
In terms of public policy for the last seven years, thanks to regulatory interference over 11m of our fellow citizens are not currently planning for their financial futures. By 2030, without major changes in policy and adviser recruitment, that figure could be up to 15m.
This should be a major concern to the Government but, thanks to the current legislative structure which grants regulators “independence”, the issue has hardly featured in HM Treasury at all.
It is time to drop the current policy fixation with the unproven and return to proven methods of distribution. To create a healthier advice market and expand the numbers it advises, the sector must make some changes and adopt a number of initiatives. Many will require a buy in from the industry, HM Treasury, the FCA and FOS.
Libertatem will be issuing the Heath Report 3 next month. It has taken so long because it has so much to say. Its theme will be “Time to Trust in Advice”. For too long advisers have been apologetic for doing good. Last year, Royal London issued a report on how much advice benefits consumers. Extrapolate their findings that advised consumers were each £40,000 better off than non-advised and you find that UK Consumers had failed to invest £440bn in the period.
Vanguard approached the matter from a different angle and have demonstrated that for every £1 of adviser fees the client benefits £4.
And not only are we doing good, but we are doing it well. The last FOS Report demonstrated that only one in 1,000 of their complaints this year found against advisers. With this in mind, it is time we stopped apologising for our existence and instead told the world how beneficial professional advice is.