The FCA has issued an evaluation of the RDR and FAMR which states that the advice sector is improving, albeit slowly it says, and that many UK savers are holding cash which could be invested.
Laith Khalaf, Financial Analyst, at AJ Bell comments on the report: “There is clearly still some way to go to close the advice gap faced by UK consumers, but the reality is that not all of that slack can be taken up by financial advisers. Personal financial advice is only economically viable for those with enough wealth to make it worthwhile, because it is a time-consuming, interactive process with tailored recommendation at the end. Indeed, this is one of the things the RDR succeeded in making clearer, seeing as it separated advice costs from product charges and raised the qualification bar for professional advisers.
“However, the scale and scope of the internet has democratised financial information and there are now plenty of resources at the disposal of those who can afford a bit of time to peruse them. There will always be people who need and want financial advice and specific situations where taking advice is crucial or even mandated, for instance where savers are considering switching out of a final salary pension scheme. But some people don’t want or can’t afford advice and for them a little bit of time and research can yield valuable long term results.
“One of the areas the FCA highlights is the large number of consumers who hold cash when actually they might consider investing in the market instead. This is particularly timely given the huge amount of money that’s been saved into cash over the course of the pandemic, not least into NS&I and other savings accounts, which are now typically paying less than the rate of inflation.
“There is a longstanding challenge here to wean consumers off cash and into thinking about putting long term savings into the market. The familiarity of cash is hard to overcome with something as comparatively ephemeral as the stock market. But as everyone in the financial industry knows, stocks are a much more attractive home for money that is tucked away for the long term and that’s particularly the case right now with interest rates at rock bottom.
“The rise of index trackers has created a swathe of funds that are cheap, simple, and ideal for novice investors, so the tools are there. Timely, clear communication and financial education are at the heart of solving this problem. With millions of accidental investors created by the advent of pensions auto-enrolment, the workplace looks like a good setting for financial education to take place.”