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Mind the gap

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Noel Butwell discusses the ‘financial advice gap’ looking at the impact pension freedoms has had on the advice market.

Bad news for Prosecco drinkers this month: sales of the fashionable fizz have reached such levels that demand has finally outstripped supply.

Any situation where demand outstrips supply is interesting. FAMR, published in March, says that many people could be trapped in a ‘financial advice gap’ – that access to advisers needs to be expanded. In other words, demand has outstripped supply.

Last year I talked about how new pension freedoms would mean more choice and flexibility for those in retirement, but at the same time mean more complexity, and demand, for financial advice firms. Looking at the research Standard Life commissioned from Defaqto earlier this year, I can see that advisers are telling us this is happening.

Since pension freedoms, 78% of advisers reported an increase in demand for at-retirement advice. 53% of advisers are also telling us that they spend more time in the review process for clients in decumulation compared to clients in accumulation.

So, according to FAMR, technology can be used both to reach currently disengaged consumers and to bring down the cost of advice through innovation. But what are advisers actually experiencing – and what strategies are they planning to use to overcome any challenges?

As part of our research, we asked advisers whether they currently had the capacity to take on new clients. Around 13% of advisers told us they didn’t have the capacity to take on new clients at retirement, and around 10% said they didn’t have the capacity to take on new clients for ongoing retirement advice. Of those who did, most would choose to increase their capacity by hiring more administration and paraplanning staff, closely followed by more efficient processes and systems, then platform technology.

Advisers tell me about the importance of efficient processes and embracing technology to increase capacity to meet the advice demand. This makes sense. Automation and technology will allow advisers to do what they do best – give good quality advice to clients who are of value – and create good outcomes for them. For a successful advice firm, strategy needs to be forward looking.

So what does the future hold? Our research tells us that 81% of advisers expect this demand to continue to increase. Either way, the advice gap that FAMR talks about is going nowhere fast – and what advisers can do is pretty much what I imagine the Prosecco producers are currently discussing in meetings: invest in people, and embrace technology and innovation.