I have drafted the following submission for the FCA Consumer Investment Market call for input. Before I submit it, I thought I’d share it here to gather further input. I’d recommend you make your own entry, here.
Make consumer financial data accessible to lower costs and foster innovation
Protecting consumers from harm is a priority for the FCA – and a critical one. We applaud the FCA for conducting this review and are delighted for the opportunity to comment.
Providing consumers access to professional financial advice is a critical way to help them secure their financial future. It has been shown time and time again that with the help of a financial adviser, consumers make better decisions for their long-term financial wellbeing. But the cost of advice is too high.
Our research on the retail investment industry consistently reveals that a failure to make data accessible — ie, available and in a consistent format — drives up the cost of advice and is a significant barrier to innovation and competition. The result: consumers pay more for worse service.
In research conducted by NextWealth of 482 Personal Financial Society members in 2019, we asked financial advisers how long it takes to onboard a new client and the average cost. Shockingly, it takes between three and four weeks on average to onboard a new client. Only 2% of advisers said it takes less than two weeks and almost 40% said it takes four weeks or more. Three quarters of respondents said the lengthiest step is waiting for providers to release information on client’s existing policies — that is, data accessibility.
Moreover, since the start of the Covid-19 pandemic wait times have dramatically increased, according to our research. Financial advisers will routinely wait two or three months to receive a response from a provider about a client’s existing pension. This is a dereliction of duty that undermines public confidence and consumer trust in the financial services market. Note that these delays are simply to receive information about the pension and specific benefits associated – not to transfer the actual pension. Worse still, the data, once received, is often inconsistent and must be manually added to back-office systems. This can lead to errors and again drives up costs.
Consumers are paying for financial advisers and their staff to wait on hold, sometimes for hours at a time, to get information on a pension policy. They are paying staff to enter data into systems that should be obtained through automated feeds. This drives up costs, which in turn limits access to financial advice.
And those costs of onboarding a new client are considerable. In a Next Wealth survey, those financial advisers who calculated the sum reported that the average cost is £1,543. More than a fifth of advisers said it costs over £2,000 to bring on a new client. The FCA is concerned about value and has rightly recognised that costs erode investor returns. But it will remain impossible for firms to offer low-cost propositions so long as these gross inefficiencies slow down processes.
Technology enables efficient ways to automate processes, but the lack of data consistency and accessibility thwarts innovation. Although new digital services are emerging on the margins, they fail to address the core inefficiencies at the heart of our industry, such as the need for a human to sit on hold with a provider.
We need regulators and legislators to force providers to give consumers and their appointed professionals access to information on their policies. Doing so will empower consumers with information about their financial holdings, reduce cost of advice and improve choice and service.
Consumers are harmed because the industry is stifled by firms with a vested interest in preserving assets and making it difficult for consumers and their professional representatives to access information. This must change in order to support innovation, lower costs, expand access and improve the financial futures of everyone.
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