Fortune Favours The Brave
Financial Advisers: Consumer Duty - Understanding the Regulatory Focus (part one)
Join us as Chris Davies, Executive Director at Howden, sits down with Keith Richards, Chief Executive Officer of the Consumer Duty Alliance.
Consumer duty is reshaping the financial landscape, and the Consumer Duty Alliance is at the forefront of this transformation. In our conversation, we unpack the shift towards client outcomes and the cultural changes necessary for financial firms to thrive in this new era. Keith sheds light on how these regulations demand clearer, more client-focused communication.
For information on Howden's Financial and Risk Advisers team please visit our website and find out more about the Consumer Duty Alliance here.
Join us as Chris Davies, Executive Director at Howden, sits down with Keith Richards, Chief Executive Officer of the Consumer Duty Alliance.
Consumer duty is reshaping the financial landscape, and the Consumer Duty Alliance is at the forefront of this transformation. In our conversation, we unpack the shift towards client outcomes and the cultural changes necessary for financial firms to thrive in this new era. Keith sheds light on how these regulations demand clearer, more client-focused communication.
For information on Howden's Financial and Risk Advisers team please visit our website and find out more about the Consumer Duty Alliance here.
Welcome to Howden's podcast Fortune Favors the Brave. We all take risks in our everyday life, and business is no different. In this podcast, we're speaking to the experts about a topical challenge or issue and what business leaders can do to overcome it.
Speaker 2:Welcome everybody to the first in a two-part mini-series where I'm talking to Keith Richards, chief Executive of the Consumer Duty Alliance.
Speaker 2:Keith and I go back quite a long way and we'll discuss quite a number of issues in these two podcasts and I hope you find them of interest. I'm very honoured to have somebody I can consider to be, I think, certainly a colleague and a friend and I've worked with and alongside and just before I do that, just to remind everybody that the podcast today is quite interactive, I'm going to have a bit of a chat with Keith. I will be being a little bit controversial, so if I, if I do, say the odd thing or two that just gets us off beam, please bear with me, but it'll make the conversation work, I'm sure, a lot more. Keith, I think you know by now that we start this podcast off with a question to you, that that question is basically to ask you, in line with the title, fortune Favors the Brave, about a risk you may have taken. It could be personal or professional, but if you could share something that comes to mind and also whether that risk paid off.
Speaker 3:Yeah, hi, chris, and it's great to be here, so thanks very much for the invite. I guess there's many that I could probably play on, but probably one of the biggest risks for me was taking on a new role when my current role was going pretty well and in particular that was when I transferred from being an MD of the tenant group, which at the time was one of the largest in the sector. Everything was going fine, but I got approached to take over the role as chief executive of the largest in the sector. Everything was going fine, but I got approached to take over the role as chief executive of personal finance society, which, if I'm being candid, wouldn't have been on my list of 100 possible employers towards the end of my career. But after, I think, the third conversation that they had on approaching me and bearing in mind this was just taking over, at the point of the retail distribution review, where most experts in the market were predicting a 60% attrition of advisors, given the change of dynamics and abolition of commission, for example, the raising of qualification standards and greater transparency, not least consumer research that suggested no one would pay for financial advice and there was me about to take over the role as chief executive of an advice membership body that was about to see a 60% reduction in its membership.
Speaker 3:So, compared to, despite the challenges of where I was, it was a pretty stable and certain future. But I took the, I took the risk and I've got to say, chris, like all these things, you can only quantify risk in the sense of knowing what the impact is going to be negatively. What you don't know is, once you get in there, what you, what you do, that makes a difference. And I've got to say from you know, eight and a half years later, I'd like to say that the personal finance society changed its profile and and had some pretty major initiatives. Instead of reducing by 60 percent attrition in the market, the personal finance society didn't drop down to the mid-teens in numbers. In fact, it exceeded 40,000 during my time. So it was a risk, but a risk that unexpectedly worked much better than I could have forecast.
Speaker 2:Brilliant. Well, I think many of the people listening, keith, might well perhaps more remember you from that time at the PFS. I certainly worked with you there on various committees and different things and you know I always enjoyed that. I think, while we're on that subject, could you maybe, for those that maybe don't know about you mentioned Tenet, for example there, but I know you have a long industry involvement that goes back even before those days as well. Could you just give us a little bit of a pen portrait about your involvement in the industry and maybe to some degree perhaps, what it is you enjoy about the industry. Why have you stayed in it? You could have taken other choices, of course, so why stick with financial services?
Speaker 3:Good question. It's a fantastic sector. I joined, when it was probably more simplistically, the banking sector, the insurance sector, and I joined the insurance sector. I got on advanced management development training. I became a representative for the Association of British Insurers, which at the time was the pseudo regulator for the sector. So for some listening in they might not know that Regulation didn't formally come in until towards the end of the 80s. The Act was passed in the early 80s. So I'm giving away my age. I was around before formal regulation as we know it came into place.
Speaker 3:But I've got to say there was a sense of pride across the insurance sector on the positive impact that insurance played in society, the difference it made to people's lives, in particular because it addressed or protected against the many risks that of course we all inevitably face. So I think actually when you talk to most people that have been in this profession they are passionate about it. Sometimes they might be embarrassed at a party to say I work in the insurance sector or I work in the financial planning sector. But the bizarre thing is we're all generally really proud to be part of it and we've seen the difference it makes to people's lives. So for me you know, I started in insurance.
Speaker 3:I became head of retail for Royal London Group in the dizzy days when we had about two and a half thousand regulated advisors and had gone through those various iterations, and then I moved on from there because the market consolidated and, not least, the head office moved from my hometown. So I took on a role at Tenet Group which at the time we built it to about five, about five thousand intermediaries between two regulated networks for those that might remember, m&e and interdependence. We had a regulated compliance support service, ifa professional, a mortgage arm called lifetime insurance, mortgage experts, and and then we went and acquired a protection club that in its own right professed to have about 5 000 advisors. But uh, once you get into the bonnet of it you you realize it's probably more like 500 active members.
Speaker 3:So I've seen all aspects of of the change that's come along from the days of cp1 to, you know, from regulation of polarization to depolarization of course, to the retail distribution review, which was the point at which I took over the personal finance society, and it's really difficult to look back and think of a time that wasn't positive. Of course, you know time goes on. Even hard times become good times, if you talk to anyone that's been in the military, they'll tell you that they couldn't wait to get out, but spend the rest of their life reminiscing about how great it was. So it's a similar thing. I think it's a part of belonging, I think it plays a vital role in society and I think we're set we're at a watershed moment where I think it's going to play an even more important role going forward.
Speaker 2:I think we often forget. I mean, I've always felt it's been a great privilege really to be able to, you know, meet, help, take clients on that kind of journey you know that financial journey. You know there's lots of things that you can't help people with in life, unfortunately. You wish you could at times. But certainly being there and being able to talk them through some of those points that have been difficult or challenging, or just making sure that they've got some guidance and scope to kind of go with that sort of provision, I really do. You know, I couldn't agree with you more. I think it's a fantastic sector and a force for good. We don't always get that kind of press from it, maybe sometimes for fair reasons, sometimes not fair reasons, but I think on balance, very much a force for good and it always concerns me. I'm sure we'll touch on this through the conversation. But a big concern of mine is the advice gap. You know being quite frank and blunt about it, you know know we're at the stage in our lives and careers where we'll always be able to find advisors. But certainly when I look at my children and other people's children, it's a real worry really to me about how will they find a way into talking and sitting down with somebody who can help them plan. You know the, the eighth wonder of the world, compounding interest. You know the fact that anything that you do in your 20s and 30s far outweighs anything you can possibly do in your later life. You know, and if they're not exposed to that knowledge and it's normally an advisor that will help them through that then I do worry a little bit. But I'm sure we'll touch on to those things in a second.
Speaker 2:But your current role, Keith, Chief Exec of the Consumer Duty Alliance. I know we spoke about this idea when it was at its very, very early stages and Howden's extremely proud to have been involved, probably on the kind of first steps for you and the organisation. I think 9th of March, if I remember rightly, I remember coming to see you make a presentation about the launch and that was great. I think some of the things that appealed to me when you were explaining the concept and and I'll ask you to explain in your own words but the key things to me, I think, were you know it was meant to be an independent, not-for-profit organization.
Speaker 2:You know they're obviously got big ticks straight away in any in any organization's mind. That sets your motivation apart, doesn't it from from from various respects. And I think this desire to try, try and these are my words, Keith, but I'll ask you to explain them in your words, but in my words, try and interpret some of the principles and maybe try and pack them out a little bit to help firms understand the requirements of the consumer duty as described by the regulator. Because I remember reading the paper and, if I'm being frank, I had a very sharp intake of breath, thinking, blimey, this is something big. So those are my words, but how did you see it?
Speaker 3:Exactly the same, chris, I think. I mean, what really struck me under consumer duty was it's the first term that's been used that's consumer-centric and I believe and certainly as someone that was in the sector before regulation formally came in I believe we own that at the time. In fact, I believe if you look at outcomes that are expected from consumer duty, I would challenge that most good firms actually believe they deliver against those outcomes and, in fact, if there was no regulator, they would still be delivering against those outcomes, against those outcomes and, in fact, if there was no regulator, they would still be delivering against those outcomes. The problem is we've had three and a half decades of prescriptive regulation to deliberately drive behavior, to change the shape of the market, and that has turned us into a bit of a tick box sector which frustrates the life out of people like you and me, because we feel it's unnecessary, because we've always worked for one of the good firms that's always delivered the right outcomes for our clients or our customers, but we respect that. It's probably we're victims of the minority that tarnish that reputation. However, I mean, I think what's really, really important and I think it's starting to come through this is one of the first reforms. You know, when you think of the major reforms of the past, a lot of firms actually got their compliance departments to go through it, and then you had to go through processes and basically you had a checklist to make sure that you could tick all the boxes, but that didn't necessarily change the way that we operated. In fact, there is a view that sometimes we ticked all the boxes and then we said thank goodness for that. We can now get back on with what we were doing before.
Speaker 3:What consumer duty does is. It takes us back to the basic principles of what we all believe, and that's that we're here to deliver the best outcomes for our clients, to make a difference to their life, and it's as pure and simple as that. I think the problem is we're now having to readapt from three and a half decades of regulatory language, which was all about tick box and frustration three and a half decades of regulatory language which was all about tick box and frustration to actually now realising the regulator saying to us no, you own this. This isn't a regulatory prescriptive. This is outcomes based, if you can evidence it. That's what it should all be about. And, by the way, please don't abdicate or think you can abdicate responsibility to compliance anymore. You can't. This is for people that lead the firm right the way through the value chain.
Speaker 3:So the one, one significant change that a lot of people haven't quite got yet is and the fco have just recently sent an update it isn't the responsibility of frontline staff to deliver the right outcomes. It's the responsibility of everyone, from those that are involved in designing products to maintaining them, to providing customer service, ultimately to selling them on the front line. Everyone now is on the hook, or being part or taking partial responsibility for those client outcomes. Now I passionately do believe that that's where good firms believe they are, and it gives us a chance to collectively pull together as a more united sector, because we have been somewhat fragmented, I think it's fair to say, over the years. That hasn't done us any favours because, you know, sometimes firms criticise other firms by trying to profess their own innocence. So consumer duty for me is a real fundamental game changer.
Speaker 3:Fca keeps saying it's not a one and done. Uh, why would it be? I was with some european financial advisors just two weeks ago and tried to translate it from being a regulatory requirement in the uk to here's some of the outcomes expected of consumer duty. If the regulators were wound up tomorrow, if ESMA Europe was wound up tomorrow, what would you not deliver to your clients? And unanimously, the whole audience accepted that there wasn't one outcome that they wouldn't want or expect to deliver to their customers or clients as a result. So I think it's it's culturally there's going to be a bit of a shift. The problem, chris, is always where I think we've accepted sometimes that the clarity of our communications to our client can be hindered by being a bit too industry-centric language rather than consumer-centric. I think the regulators now owning up to perhaps overusing regulatory-centric language rather than relevant industry-centric language.
Speaker 3:Vulnerability is a good example. Was it? 49% of wealth managers, 69% of stockbrokers back in February thought that they didn't have any vulnerable customers, because the FCA have now changed their terminology from vulnerable customer to vulnerable circumstances. So of course, wealthy people or people that are investing through stockbrokers of course suffer bereavement, divorce, issues in their life that actually make them more vulnerable at that point in time.
Speaker 3:Maybe it's those words of vulnerability that have confused. We should be talking about circumstances where clients or customers need extra support or consideration and help at those points. That makes more sense. So if someone had, you know, impaired hearing, we know that we might have to do something to help them. Uh, you know, if they got sight difficulties. But, of course, if people come to us with other issues and with cost of living, for example, you know lots of firms have had to to wake up to what do they do to support their customers who are, you know, who are suffering through a cost of living, in particular in the insurance sector, and I'm pleased to say, the regulator has acknowledged that there's been some really good evidence of firms responding well to those kind of things. But they're vulnerabilities that we don't identify because we think a vulnerable person, and I think that's the bit that we've got identify because we think of vulnerable person and I think that's the bit that we've got to change under consumer duty.
Speaker 2:I was going to come on to that later. Actually, I had a question for you. You've preempted it, which is just typical of you, keith, you managed to beat me to the draw on it. But I think I can certainly remember reading FG211.
Speaker 2:And the terminology was absolutely about vulnerable customers. It never mentioned it might have mentioned circumstances, but it mentioned vulnerable customers and I think I've gone back to that and read it again, probably back in the last year as I've dealt with my life at times. I've gone back to read that, but in doing that what I realised was that I think this is a shift, because if you read FG21, I think it was very much a case that they probably did mean vulnerable customers at that point. Now I know you were also involved in the FVT and I think when you look at the words that you use there as an organisation, it was always around circumstances rather than individuals, and about anybody could have a vulnerability depending upon the circumstances, and I think the regulators very clearly made that shift into the FET wording from where it stood. So I actually think they maybe changed their position on that somewhat.
Speaker 3:Sorry, chris just for the listeners FVT meaning Financial Vulnerability Task Force.
Speaker 2:Another set of acronyms that we use without absolutely thank you. But again, you can look that up on the website, the FVT website. You can look that up and you'll see that the original wording was all about circumstances, whereas the regular is talking about customers. But the thing that still probably troubles me, Keith, with this is that I think customers in vulnerable circumstances I think a couple of things. I'm not sure that clients will want us to think of them as vulnerable, even though they may be in our judgment. I think customers often hide those vulnerabilities because it's human nature to some degree, I think. And what can trouble advisors then is that if you have a situation where your view might be that this customer, client, friend, doesn't want me to think of them as vulnerable, brackets, a weakness in some people's minds, if I've then got to start recording things on a file, gdpr and all these kind of manner of things, what if I start putting stuff down on that?
Speaker 2:I think that, to your point, I think many firms will always have probably looked to spot those circumstances and probably altered quite naturally from a normal empathy an advisor tends to have with their client bank. They will have altered a bit of the way they deal with things or gone a little bit slower or reinforced certain points. But I think this point about trying to record it has probably in my mind created a little bit of stress in the situation because just because of those things, I don't really want to necessarily make a judgment on somebody's vulnerability, even if it's temporary, and I don't maybe always want to write that down, because once you start writing things down it's there forever in black and white that you've got a view. And what would happen if the client came along and asked me for a data access request? And there they've, there. They see on my file that I've in my own mind at the moment with a vulnerable tag. Can you see that those things present challenges to the advisors in how they might?
Speaker 3:feel comfortable doing that. Yeah, absolutely, and I think that's why we've got to change the language, chris, because our internal language is recognising vulnerable circumstances, but you wouldn't tag a client or a customer as a vulnerable person, because you're quite right. I mean, who wants to be stigmatized as being vulnerable? And it is an embarrassing thing for some people to admit that they're under pressure. I mean, in particular, we are seeing increasing financial abuse within families, and so who wants to admit that that their adult son or daughter is is putting pressure on them? But, um, but I think it's. The difference is it's when you ask people, are there any circumstances where you, you need any additional support or help, or is there anything else I can guide you on? Uh, and I think that starts to change the tone where people might free up and say, well, actually, yes, actually, there is clearly if, if someone introduces straight away that they've just suffered a bereavement in the family, that's obviously an introduction to for you to talk about what additional support the client needs. So I think it's it's about us being alert to the the additional considerations and support or guidance that someone might need in various circumstances. Now, it's not foolproof, and the regulator has accepted that it is not foolproof. They just want firms to be alert. There is a. There is a second side to this, though, chris, because we we tend to think of this as either people with identifiable disabilities or vulnerable circumstances, and and naturally I think you're right I think most people would intuitively, if they pick up on it, they would offer that extra support, be empathetic with the situation.
Speaker 3:However, where vulnerability also comes in that people can't miss is over the years. The financial services regulators across the world are there to protect consumers from poor practice. Now, when I say poor practice, if you go back to the the days of probably 30 years ago, there was the risk of advisors not getting gaining enough information to determine sustainability of a premium they're recommending, and if it was a termed product, so, then it may have been affordable at the point of which the advice was given, but if if a life event, for example, having a family and giving up work, was planned but not considered, and therefore at that point the premium was no longer available, then that's not avoiding foreseeable harm. The consumer is going to suffer a loss if they have to stop paying or surrender. So, where regulation is sought, to suffer a loss if they have to stop paying or surrender.
Speaker 3:So where regulation has sought to address vulnerability is the client wouldn't know that, they wouldn't know to test their own sustainability, in the same way that they wouldn't know how to test attitude to risk, necessarily. So the onus comes more on us to address those vulnerable circumstances. It's a bit like you would deal differently with an inexperienced investor to an experienced investor. So the vulnerable but again is is is around us, being alert to what the regulator means.
Speaker 3:And I don't think the regulators I think they would accept if they they were sitting here. Certainly the conversations we've had is they accept that they are probably guilty of trying to drive change, but using regulatory language rather than consumer-centric or industry-centric language that deals with their clients. So I totally agree. I mean my recommendation to firms is you have to have vulnerability processes or awareness to address the circumstances and be able to evidence that to the regulator. But you would never talk to the client as if they're a vulnerable customer. You talk to them about the additional support that they need or the additional considerations that you're going to put in place to address the circumstances that they're facing.
Speaker 2:And I don't mean this to sound as tongue-in-cheek, Keith, as it probably will do, but is this such a thing as advisor vulnerability?
Speaker 3:Oh, absolutely yes. I mean there's no question about it. You know the regulation has we've got to accept it's driven change in the market, but it's also driven a lot of unintended consequences in getting to that point, and I think advisors themselves do suffer levels of stress and vulnerability because of the risk of getting it wrong, being uncertain about whether, so you know when you intend to do the right thing. You're still left to interpretation of whether you have. So you know, I think that's changing, chris. There are some really positive indicators that I'm very happy to share, that we're starting to see that could change that position for the better. I mean, you certainly mentioned the advice gap earlier. Maybe we could get on to that at some point yeah, of course.
Speaker 2:Okay, brilliant, I think. Um, in no kind of particular order, I've I've jotted down a few of the current themes. I suppose, um, one of the ones that maybe maybe we can, maybe advice gap will lead into it anyway in a way, in a way, but obviously the regulators just just completed some work on the at retirement income, advice around advice surrounding that space. And I think you know, given that probably well, I don't know how many years ago, keith, but certainly when you and I were in our first flush of financial services youth, everybody had an annuity right. Basically, you got to retirement and you locked in whatever you could afford to lock in, depending on what you needed to start off at, and you took your luck on how long you lived and whatever you could bake in in terms of spouses, benefits and whatever else, and that's kind of what happened. And then then we sort of put some arbitrary numbers together.
Speaker 2:If I remember rightly, there was a talk about, you know, if you've got a hundred thousand pound pot, then if you were above that, um, you could maybe think about, I think it might even be a quarter of a million to start off with, and then, above that, you could maybe look at a sort of income drawdown that can come down to 100. Then obviously we've had pensions, freedoms and all bets are off and any, any, any, any number can be considered. But again, if we generally accept the that, the level of understanding of well, if I say compound interest, the reverse obviously works. When you start to decumulate, because as you're taking money out, if the market's falling or going against you, then you're doing the pound cost ravaging, as it was called, isn't it? As we call it?
Speaker 2:Get the client up to speed with those concepts, or is it really? They're always the backstop, because if something goes wrong and the client didn't understand, then there's a complaints process and an ombudsman and there will be redress. I suspect there's something of a balance between those. But how long can you go on talking to clients about concepts that are quite technical and quite difficult? Where's the balance between? It always rests with me as the advisor anyway, I've explained those things through. But there's an element of well, I think it's the right thing, do it.
Speaker 3:Yeah, I mean, you know, for the first time in our history, government mandated the need for regulated advice when pension freedoms came in and that was for safeguarded benefits above 30 000 pounds. So that that was. That was quite a significant recognition of of putting professional advice potentially in harm's way and protecting consumer interests. Now we know that there were lots of unintended consequences that came from that, with things like insistent clients who wanted you know they were given the freedom, so they just wanted to do it.
Speaker 2:Sales of.
Speaker 3:Lamborghinis, all that kind of stuff. Absolutely so, and that's obviously a vulnerability that advisors did efface very much. But you're right, I think the dynamics of the market have changed. I mean, look, when I first started, 80% of consumers were still paid weekly in brown envelopes, called wage packets, in cash, which is why the home service was dominated at that time. The man from the Prue had 13,000 advisors. By the mid 80s it switched the other way around, where most people were paid by their bank on a monthly basis, and so the dynamics of the need had to change with the way that the economy was changing and society was changing. And you're right, post-war, pretty much every employer provided the final salary pension scheme, whether you liked it or not, provided the final salary pension scheme, whether you liked it or not. Um, you know, I can't remember if I was particularly enamored by being mandatory put into the pension scheme, because I didn't understand it, um, and no one could explain it to me, and it was a deduction line on your, on your, on your pay docket, wasn't it?
Speaker 2:so that was never a good thing, well, do you?
Speaker 3:know what I've got to say. I was one of the lucky ones where it was a non-contributory in my early days.
Speaker 2:There we go, Keith. That's answered a lot of questions, yeah yeah.
Speaker 3:So, yeah, sorry to annoy anyone, but you're right, chris, and most people in that era stayed with the company for a long time. So, even without thinking about your retirement income, if you aligned it to the state pension at 60 for women and 65 as it used to be actually people ended up with a really good retirement, even though they'd not put much effort into thinking about it. Saving hard enough, it was done for them, and I guess this is where auto enrolment is now trying to bridge a gap. What we've got is a massive void in the middle. Financial advisors have now moved to the opposite end of the scale. So where we're? You know, 30 years ago they were mainly in the accumulation stage, helping people think about saving more for short-term goals as well as their long-term retirement planning. So even those that weren't benefiting from an in-house uh pension scheme, actually people got active advice.
Speaker 3:Today, of course, as we know, regulation has forced financial advice further up the value chain, so they are dealing with people with more complex needs. Things like drawdown uh is is a, you know, dominant now compared to the past, so people simply don't get to retirement, annuitize, get an income, adjust their lifestyle and carry on as happy as they can be in in retirement. Now there's a lot more complexity and what the thematic work is showing is two things Huge void, which I think we refer to as the advice gap. So huge void for those in accumulation, because they're not now typically the future clients of regulated advice. It's people with more complexity that have accumulated.
Speaker 3:So where are the touch points? The banks have almost disappeared off the high street, so they used to be a touch point for stimulating advice. We used to have two and a half thousand advisors across the sector, compared to today's 31. So many of the touch points have gone. The dynamics have changed. The way that people look at jobs now is less long-term. People are more transient now moving around employment. So something's got to change dramatically and what we're seeing from government is two things A recognition now subject to which government gets in, and whether or not this is all going to change.
Speaker 2:We probably should have mentioned that at the beginning, shouldn't we? Depending on when this airs, yeah, yeah.
Speaker 3:Everything might be changing Absolutely. We might be back talking about a completely different strategy. There's a few things that we've got to do. I think the regulated advice sector play a key role and there are circa 6 million consumers who actually have complex need and have assets but don't currently engage. If they all did tomorrow we wouldn't have enough advisors to go around, so there would be a capacity crunch. We are going to see some exit from the market through consolidation and exit planning of advisors. So we've got a big challenge to refresh and bring in new talent and we're working hard on that through the alliance with a number of firms across the sector.
Speaker 3:But the bigger issue we've got is how do we re-engage consumers who have lost all the touch points to engage in their financial well-being? You know, we know that someone that was traveling into the city pre pre-covid three, three coffees a day, believe it or not, roughly equates to about 200 pound a month. That's 2400 pound a year over 10 years. That's 24 grand. Now if you said that to someone on three coffees a day, five days a week, you've, over the last 10 years, you've spent 24 000 they'd probably fall off their chair.
Speaker 3:The same person probably thinks they can't afford to save for various goals at the moment because they don't understand the basics of essential expenditure and non-essential expenditure and how they might be able to reshuffle and afford and then all of a sudden find that in 10 years time they've actually accumulated some wealth which might take them into a different place. So the challenge we've got is it's not so much an advice gap in that people are looking for advice they can't find is that we've got too many consumers that are completely unengaged in their financial well-being. So we have put a proposal forward that government, regulators and sector need to join together on a much broader financial education and engagement strategy, including work, workplace, uh, to be very much involved in that, to get people into that, that savings habit. We we have got the lowest savings ratio since records began. So you know it tells you we've got a big problem.
Speaker 2:I mean, I know that, you know. I say we all know. But you know, the stats are trotted out, aren't they? I mean, I started back in 1990 and I think I looked it up, there were 220,000, I'm going to say financial advisors. Now I know you're laughing already. No, you don't.
Speaker 2:But what I mean by that? There were at least 220,000 channels, people who were offering let me loosely call it financial services. And I'm not trying to say for one second that that's what we need now. I'm not saying that at all. And we know that the level of education for those people to go from whatever they were doing before to being a financial advisor wasn't correct, and I totally accept that. So I'm not advocating we go back to that, but to use your numbers 31, I had 27,000, but I'll take your number 31. So I think in that same period 1990 to 2024, according to my figures, we've sort of gone from 50-something million early, 50 million of population to 66-ish now we're heading towards that. So we've got the population's got up. They're growing older, they're living longer. All good news, by the way, yeah, but the number of people out there, as you say, offering to provide financial advice, has gone from 220,000 to say 30,000.
Speaker 2:It just strikes you, doesn't it that, okay, some of that would have been wrong, you know, some of that would have been commission-driven, and I'm not arguing for that, but nonetheless, to have that amount of people talking about financial provisions, talking about life insurance, talking about savings plans, that number of people generally in the community, my worry is that it doesn't take much more than a generation, because if your parents stop talking about it because they haven't been sort of brought into that environment where protection savings, even the occupational schemes that you mentioned once, that dissolves. If you go and get to a certain point where it hasn't been a priority for you because you haven't thought about it, nobody's held you through that or taken you through that process. Well, one, you don't tell your kids that either, do you. So it doesn't take a lot longer than a generation or two before we've totally sort of, without thinking about it, disenfranchised most people from that accumulation, that early accumulation phase, that even, I dare say some of those early savings plans that I remember, hopefully some of them are still going well, not now, probably. Those early savings plans that I remember, hopefully some of them are still going well, not now, probably. Hopefully they paid out.
Speaker 2:But you know, within and around that commission was a, you know was was seen as something that was wrong. I understand why. On balance, we've arrived where we are, but it's equally difficult, isn't it, for the, for any of the financial advisors listening to us now chat, other than if the client is a family and you see that, you know, you see your client as a family and therefore you'll you know you're dealing with mum and dad. Suddenly you'll say, let me talk to the kids and I can do their ISR allowances for free, really because you're dealing with them as a family. But in the absence of that, how do people get remunerated to the point of, you know, not just the work that they are going to have to do, the paperwork, the research, the risk, the professional indemnity insurance they have to pay to really deal with somebody who says, well, you know what I'd like to do, I've done that little bit of you know jiggery-pokery on my finances and I can pay you £30 a month.
Speaker 2:They were our bread and butter £30 a month savings plans back in the day, maybe for the wrong reasons, but in essence because that's what people could afford. There was still a living for a financial advisor to be made dealing with that segment of the market and, as you said earlier, what we seem to have done inadvertently nobody's planned it, I get that, but we've ended up with advisors dealing with, generally speaking, more affluent clients, generally older. The advisors themselves have got older and really now we have the. You know the population, you know it's very rare that we see young people coming into financial services and you know I welcome anything that you're going to do and anybody's going to do to resolve that. But nonetheless, even it seems to me, even if we could increase the number by 10 percent or 20 percent, as you said, there's just still only going to be dealing with those people that have more complex needs.
Speaker 2:We're not probably going to be dealing with those people that have more complex needs. We're not probably going to get deep enough into what I think of the advice gap, which is those young people my kids who's going to help them? And I just can't see a way that they are ever going to be helped without something like self-service. Not quite sure why they would wake up in the morning and decide to buy a life insurance policy, ai. Maybe you morning decided to buy a life insurance policy, ai. Maybe you know something where you could put a bit of a vignette where somebody could listen to a little thing. Oh, that that strikes a chord with me. Maybe I should do something. But really, keith, how are we ever going to get back to finding a way to deal with those people, or is it, or is it?
Speaker 3:gone. No, I think there's some light, so we can't go back. So we're, we certainly can't go back because I mean, to some extent, chris, I'd say there was nothing wrong with commission as a way of remunerating. It was the abuse of commission that caused the problem advisors or brokers who churned once a product was out of its its clawback period so that they could generate more and the client, completely oblivious to any impact financial impact on them. So I think in the end, it had to go, but it has driven a complete financial advisor into a different place. As you say, now we've had the consultation that's been jointly run by the treasury with the fca. Now it's only the second time the treasury has been involved in looking at the advice gap. The first was back in 2016 under the Financial Advice Market Review. So there is an acknowledgement as far back as 2016 that there is an advice gap, that there is a problem and it needs to be solved. Now, at that time, the review got interrupted through something called Brexit, which kind of took Treasury's attention somewhere else. But we're back there now. Now to answer your question.
Speaker 3:Look, regulated advice will continue to play a really key role into the future. If we're not careful, we're going to end up with an advice crunch. People with accumulated wealth intuitively accept paying a fee because they've got the wealth and they've got the complexity, and paying a fee to a professional sounds eminently sensible rather than walking down a road somewhere talking to someone for a bit of basic information. However, for a young couple who simply want to talk about risk and how they protect family income benefits or how they take some protection to protect against the debt, their mortgage or or how they you know what sort of savings vehicles are available to accumulate some money for their children's education or whatever it would be, actually now falls under something we had three options put on the table. Can you simplify regulated advice? Well, you can already do that. The rule book doesn't stop a regulated advisor simplifying the process, but it's their choice. If you try to formalize it candidly, chris, there's too many financial advisors out there where their time is being demanded by wealthy people, so why would they now offer a simple service to talk to someone about £50 a month or £100 a month savings £100 a month savings? So they can be part of the solution, but they're part of the bigger solution as people accumulate wealth and I think they're well established.
Speaker 3:The issue we've got is somewhere in the middle. So the regulator actually is offered to give more certainty over getting closer to the advice boundary Still feels very risky. So the third one, or the one that was in the middle, is something called targeted, targeted support. Now we've referenced it as assisted guidance. So what we may actually see is big brands, both insurance companies and um, you know, on the investment side, coming in with a simplified range of products when I say simplified, safe range of products, not introducing complexity that can address straightforward savings and protection needs. As simple as that. And it's done under an assisted guidance. So it's not regulated advice but and assisted guidance sounds a bit better than just guidance or simplified advice. I mean, advice is advice. So what we've got to do is come up with a completely new regime that allows big, responsible brands who have the ability to do volume to come back into the market.
Speaker 3:Now, as controversial as that might sound, the only way we're going to really fulfill the needs and do justice to the mass market is if we do that, because we can't unwind what's already happened. Too many regulated advisors are built now very sustainable businesses, you know, of course, when they get a client come to them with a million pounds, that's another million pounds of assets under management of which they can provide an ongoing service to. So why wouldn't you carry on doing that? And then one day someone comes along and says, no, you've built 100 million. You know we'd like to acquire your business, and you can retire into the sunset. So financial advice regulator advisors have built, they've completely changed the model.
Speaker 3:So, whether it's the regulation that's forced it, whether it's the economics, um, but the one thing that we're we're not doing well and and I think it's a failure of government and regulation is that we need the introduction of a new regime called assisted guidance that allows larger firms to come in responsibly. A customer service perspective can't be the same person that provides features and benefits under assisted guidance to allow someone to purchase a product that's relevant to their needs or savings goals. Why would you have to pay them, commission? You don't? So we could avoid that, that conflict of interest that previously was there under a commission driven culture. We can completely eliminate that. So we don't have to repeat the errors of the past that caused the conflicts of interest and therefore the criticisms that the wrong products were being sold.
Speaker 3:So I think there is some light at the end of the tunnel, but all these things it's often harder to you know that flight to quality, sometimes the old saying about less is more. It's still hard to actually reduce something down from 69 pages to six because you just think you're losing, missing so much out. So I think we're going to travel on with this. But the more evidence we see of consumer detriment, consumer harm, so bear in mind consumer duty of the key core aspects is to avoid foreseeable harm. Well, that's what we got.
Speaker 3:We've got to remind the government from the voters is that they need to join together with experts across the sector to come up with a solution that avoids foreseeable harm, because there are just too many people you know we are talking about young people that are susceptible to the risks in life. They're not covered. In my day it was mandatory to have protection against the debt, so biggest debt was the mortgage mandatory. You couldn't have the mortgage without taking protection and assigning it to the lender, by the way. So they knew if you tried to cancel the premiums, you know. I think all these things are now on the table. We are out of Brexit and there are some positive indicators from the regulator that they may be able to do things differently this time than past reviews as a result of that. So they're not constrained by European regulation, so there could well be more freedom to actually address the issues facing the UK public.
Speaker 2:Thanks to everyone for listening to episode one. There will be an episode two, so please do tune back in and look out for that when that hits your media streams. I will be talking to Keith and we'll be covering more of our industry developments and sharing our experiences over the last 30 years.
Speaker 1:Thank you for listening to this episode of Fortune Favors the Brave from Howden. To hear more episodes and subscribe to our channel, search Fortune Favors the Brave on your favourite podcast app.