Mind the gap (s)...

7 August 2024

Ok, let's start with some numbers…

• 9%, yup only 9% of consumers have paid for financial advice in the last  2 years*
• 20% of firms turn away clients with lower assets, with 50% only serving under strict conditions*

As you’ve probably guessed, I’m talking about the advice gap!

And one more you might relate to?

• 38% of clients account for 5% of AuM**

That’s the commercial gap!
 

One thing we can’t make more of is time

Giving advice is costly, the regulatory burden is high, and the fair value assessment can make minimum charges prohibitive for clients with lower levels of assets.

Adviser capacity is at breaking point, and one thing we can’t make more of is time. There is a large spread of asset levels across advice firms, with those lower asset clients eroding margin, and impacting business valuations. Firms are considering the opportunity cost of how to use adviser time - imagining a world where business growth is unlocked and time is focused on clients with more complex needs.


Do you understand your cost to serve?
Many firms are not yet clear on the cost of providing initial and ongoing advice. Perhaps under your Consumer Duty plans you’ve mapped out the number of hours across adviser and admin time it takes to fulfil a client advice relationship, along with the associated regulatory and PI costs?  

It may be that clients are loss-making but you make a deliberate decision to maintain that relationship, as the client may be “linked” to a family where overall the cross-subsidy is appropriate.

Many firms have introduced minimum fee levels, but often set against the investable wealth, these will fail the fair value assessment.

The use of tech to reduce the admin burden will be key to reducing the cost to serve, but we have to be careful not to remove the humanity. 

From our research, it seems there are two groups of clients out there … existing clients who are already receiving advice, but are loss-making, and those who are referred, and outside of your target market. 

Existing clients are undoubtedly more challenging, as many advisers feel a duty of care to these people who have entrusted their financial hopes and dreams with a firm. We see the regulator baring their teeth, with some S.166 issued around advice fees charged but services not delivered, but often there are not enough hours in the day to deliver and document the annual review and other advice obligations.

Even for referred clients, it’s hard to say no. When clients approach you for advice, we know that advisers have “I can help!” as the default position, but giving regulated advice to clients with a lower level of assets can be challenging. Adviser capacity is stretched, for non-target clients who approach you, what’s the alternative?  

What are the options?
In our discussions with advice firms, here are some of the ways that advice firms are addressing this:

• Many firms are directing clients back to VouchedFor or Unbiased to find an adviser who may be able to help. However well-meaning, the chances are that most adviser firms are facing the same challenge, and are unable to onboard smaller ticket clients.
• Many direct clients to a D2C platform like Hargreaves Lansdown or AJ Bell, but that person has asked for advice, so execution-only may not be appropriate for their needs.
• There are firms who are using their trainee or junior advisers to “cut their teeth” on those clients, and while starting with clients with simpler needs might be a gentler induction to the client-facing world, they may lack the experience and skills to build trust, empathy and deliver brilliant customer outcomes.
• Many firms have already turned off ongoing advice fees, as they do not have the capacity to deliver the obligations associated with ongoing advice across their entire client bank. While some are writing to clients to essentially say, “you are too poor”, many are coupling this with the offer of transactional advice. Those who are 6 months in tell us that it is actually still loss-making due to the time and effort to re-factfind the client etc.
• Some firms have built partnerships with robo-solutions, but the starting point is “how much do you want to invest?” which could leave many clients confused and disheartened. We know from listening to our coaching calls that many clients don’t think of pensions as investments inside a pension tax wrapper, so this may send them into a tailspin!

What if there was a place where everyone could get the help and advice they need with their money? At Octopus Money, that’s the challenge that gets us out of bed every morning!  We want to democratise access to financial advice.

We do this by reimagining the rulebook, and by using accredited financial coaches to hold the client’s hand through the journey from understanding how they feel about money, using a cashflow modelling tool, and creating a financial plan. Now, here’s the clever bit … we use the tech to deliver the regulated financial advice!  

So what’s your story?
We’d love to understand how you are thinking of the challenge of smaller value clients. Please complete our two minute survey here, for the chance to win Penny, our Octopus Money plushy!



We will also share the results with everyone who participates so you can see how you compare with your peer group in the advice space.

Want to know more about how Octopus Money can help?  
Built with the needs of smaller clients in mind, we are working with advice firms to acquire client banks that are commercially challenging to serve, and also paying for referrals for customers who are outside your target market. It’s a win-win-win!

Want to know more?  Please take a look at our website or reach out for a chat at  [email protected]