Understanding the UK Savings Gap
Against a backdrop of economic uncertainty in the EU and little growth in the UK, , Daniel Harrison, Senior Partner at True Potential explores the current savings gap and how technology can be used to engage investors and add value to IFA services.
FSA RDR and Its Implications for Investors
The FSA’s retail distribution review (RDR), introduced on the 1st January this year, was drawn up with the aim to bring transparency to the relationship between the investing public, their independent financial advisers and the financial product providers. The biggest change introduced is that investors now have to pay their IFA for the advice they receive, either upfront or through a visible commission on the investment.
In light of the RDR, the appetite for using a service which is no longer viewed as ‘free’ could decrease. A report by Deloitte estimated that 24 per cent of investors would be likely to reduce the number of times they use an adviser.1
One of the real worries is the negative impact this would no doubt have on the UK savings gap, which is already at an all time high. Europe’s pension savings gap is currently estimated at €1.9tn, with research suggesting that the UK, France, Germany and Spain boast some of the largest shortfalls of the western European economies.2
Impact of Regulation on Investor Access
It is estimated that as a result of the RDR, 5.5m potential investors might find themselves disenfranchised and unwilling to seek financial advice. These customers, who account for 11 per cent of UK adults, will represent a significant post-RDR advice gap.1
Previously employees may have been able to access financial advice via their employer’s financial adviser, accessing valuable information about the importance of saving and meeting their financial needs. Educating individuals is one of the things that financial advisers have been doing well for a very long time and the RDR may unfortunately have an impact on the uptake of such advice unless something is done to engage and encourage potential investors.
How Technology Adds Value for IFAs
As IFAs begin to introduce charges for their services, it has become more important than ever for them to show added value and competitor differentiation to potential customers. The use of technology to do this should not be under-estimated. According to Ofcom, tablet ownership has jumped from 2 per cent to 11 per cent during 2012, while two fifths of UK adults now own a smartphone.3 IFAs should adapt to changing consumer behaviour and employ wealth management platforms that suit an investor’s lifestyle and enable them to access finances on the go.
The True Potential Single Integrated Wealth Platform is designed to empower investors to take control of their finances and also assist financial advisers by adding value to the advice process. Investors are able to effectively manage their relationship with their adviser by communicating through the platform as often or as infrequently as they require. The platform allows investors to monitor and amend their personal investment activities in a way that is engaging and interactive and fits into their current lifestyle. Such technologies therefore have the potential to bring new savers into the system and help to bridge the investment gap.
Transparency and Trust Through Online Platforms
Online platforms also offer greater transparency to investors, which is essential to ensure trust and demonstrate compliance with the regulations within the RDR.
Using technology such as online wealth platforms, administration can be reduced, which means advisers are able to offer an improved service with more time to spend with clients. When combining the extra complexity of exams, new reporting and compliance requirements that have come into effect with RDR, this is even more important as workload and administration has increased dramatically.
Balancing Regulation and Bridging the Gap
To conclude, the RDR will improve the professionalism of IFA conduct but it does not seem to work hand in hand with wider policy direction. The current savings gap is a major concern, particularly as life expectancy continues to increase, and this is creating a need for advisers to add value to their services in order to reduce the number of disenfranchised investors choosing not to seek advice.
References
1. Bridging the advice gap: Delivering investment products in a post-RDR world, Deloitte. http://www.deloitte.com/assets/Dcom-UnitedKingdom/Local%20Assets/Documents/Industries/Financial%20Services/uk-fs-bridging-the-advice-gap.pdf
2. http://www.ft.com/cms/s/0/645d8c3e-60bb-11e2-b85b-00144feab49a.html#axzz2JN0EdtdK
3. The Communications Market Report 2012: United Kingdom http://stakeholders.ofcom.org.uk/market-data-research/market-data/communications-market-reports/cmr12/uk/
