The FCA wants to ensure regulatory support for positive technological developments, particularly those which can deliver some form of automated advice for consumers with straightforward needs.
It is not just a solution for the advice gap, it is a logical development for the future, technology enabled delivery has become the norm in so many sectors. As a result, consumers have come to expect and enjoy a wide variety of lower priced goods and services.
Specifically, the regulator is looking at whether firms could offer investment advice that is limited or focused on a specific consumer problem or need.
A simplified advice proposition could be powered by technology with the ability to deliver secure and robust outcomes for consumers.
As trail income begins to slip away, some advisers are very keen to develop a passive income stream where technology is deployed to a greater extent in delivering a basic level of investment advice.
Simplified advice is, quite simply, a service where the scope and limitations of the advice are clearly defined and the client is required to accept these conditions.
This is relatively simply to achieve within a passive investment strategy which could quite comfortably be defined in a couple of lines. While general market risk will always remain, a passive strategy carries no specific or unsystematic risk, as one is simply tracking an index.
Post-RDR, we have seen a huge rise in the popularity of passive investments, undoubtedly, as a result of an increased focus on cost.
Pricing structures within the industry have become more transparent and as regulatory costs have increased, many banks have exited the advice sector altogether.
More and more advisers have responded to the downward trend in pricing and squeeze on margins, by bringing in a menu of priced solutions which include cheaper passive strategies.
In a recent report, Barclays Capital highlighted that many retail customers may be starting to question the value of advice.
They are being asked more directly for a cheque by their adviser and it is possible that many will balk at the implicit fee calculations.
Higher volume, lower margin propositions will be a post-RDR trend that advisers will not be able to escape.
In the past we have endlessly debated the numerous articles and studies written, and the theories created by leading academics, over whether active investment management outperforms passive and which strategy is better. There is no definite answer either way.
In a future that is likely to become quite different, the answer may not be so important. Each strategy has its merits.
The focus will be solely on investor outcomes and consideration of what the end investor actually wants? Ultimately, different investors want different things.
In the context of simplified advice, advisers may decide to limit the consideration of active strategies to full service clients and deliver only passive solutions.
In a situation where the adviser at that stage, may not yet know the client, they will look to give the most compliant and best decision. That will be the cheaper and lower risk option.
