Need to know:
- The Financial Conduct Authority (FCA) estimates that there are 16 million people in the ‘advice gap’: those that need financial advice but cannot afford it.
- While the retail distribution review (RDR) made the advice charging process more transparent, it also made it more expensive by raising standards.
- Robo-advice is seen as a solution to the gap in that it can offer advice through a streamlined process making it more affordable.
Robo-advice is fast becoming a popular method of reaching employees in the workplace with information and guidance as part of a financial education programme.
Robo-advice has been in existence for a few years but it was the retail distribution review (RDR) that prompted a new era in the financial advice industry. Since 1 January 2013, independent financial advisers (IFAs) and employee benefits brokers and intermediaries have been remunerated on a fees basis rather than commission. Until that point, much of the financial education and advice had been provided by intermediaries’ commission, with some employers and employees unaware of how, and for what, they were paying.
Transparency to advice cost
While RDR brought many benefits, it also created a wide chasm between those that could afford advice, and those that were unable and unwilling to pay for it. Jon Bryant, director at Aon Employee Benefits, says: “RDR had many good benefits, transparency being one of them: ensuring clarity around what services are offered and what earnings are going to be had.”
However, it removed the necessity for employers to give employees access to advice and assistance, explains Bryant. “Suddenly an employer didn’t have to spend £100,000 to give member surgeries and one-to-ones,” he says. “The industry is changing, three years afterwards, and will continue to change. Part of that change is robo-advice, the principal being mass customisation.”