THE FUTURE OF FINANCE: ‘Advisers are talking nonsense when they say they can’t help low earners’

Roughly 19.8 million people in the UK say they want financial advice but many of them don’t know where to find it, according to new research by digital advice firm OpenMoney.

In light of these findings, we sat down with Anthony Morrow, chief executive of OpenMoney, to hear about how his firm is trying to address the UK’s advice gap and why he thinks robo-advice is not the answer.

If you want to wind up Anthony Morrow, tell him it’s impossible to offer proper advice to low earners.

Over the past few years, those with small incomes or little to invest have found themselves being denied access to financial advice.

It all stems from the then Financial Services Authority’s ban on commission, which forced advice firms to charge fees and inadvertently pushed up the cost of advice, making it unaffordable for millions of low earners, they argue.

In a nutshell, many financial advisers felt those with comparatively small assets were no longer profitable following the Retail Distribution Review (RDR).

“The cost of financial advice is too high because there is a lack of competition in the market to bring that cost down. To suggest anything else is just disingenuous.”

However, this argument doesn’t wash with Morrow, the founder of advice firms evestor and OpenMoney.

“It’s nonsense when advisers say they can’t help people with less money because they are not profitable,” says Morrow. “The RDR is given as an excuse for the advice gap but it actually did a lot of good.

“It is simply the industry making excuses rather than coming up with solutions. When advisers say low-earners are not profitable, what they really mean is they are not as profitable as other clients.

“The cost of financial advice is too high because there is a lack of competition in the market to bring that cost down. To suggest anything else is just disingenuous.”

A paper published last year by the Financial Conduct Authority (FCA) suggested as many as 18.2 million people who may have needed financial advice in the previous year did not take it.

And earlier this month, research from OpenMoney revealed that as many as 19.8 million people in the UK would like financial advice but many of them don’t know how to get it.

Morrow, who co-founded support services provider Paradigm in 2002, is convinced this is the result of a steep rise in advice fees, which these days can range from £75 to £300 an hour, according to the Money Advice Service’s website.

To put that into perspective, it costs around £200 an hour in most major cities outside London to obtain legal advice from an experienced solicitor, Government guidelines suggest.

With so many people priced out of advice, the conditions were perfect for a new breed of low-cost, digitally savvy advice firms known as “robo-advisers” to spring up.

These online advice firms use algorithms, rather than human advisers, to build investment portfolios using predetermined risk buckets, thus stripping out much of the cost of providing a recommendation.

The breadth of OpenMoney’s offering was born out of Morrow’s belief that the definition of advice was too narrowly focused on investing.

This low-cost approach has been hailed by some as the antidote to the UK’s advice gap. But not Morrow, who dismisses them as a “second-tier” solution.

“Basically, what the industry is saying is: ‘If you’re profitable, we will give you advice and if you’re not, then all of the risk and decision-making sits with you’,” he says.

“That’s not acceptable. The paradox is that those people who are denied real advice are the ones who are least capable of making important financial decisions.

“It grates on me that the industry still wants these customers but is only willing to offer them a second-tier service.”

For this reason, Morrow, alongside Moneysupermarket.com founder Duncan Cameron, decided to launch OpenMoney in January 2016.

While the firm is still in the early stages of development, the ultimate aim of Morrow and Cameron is to provide affordable financial advice to anyone who needs it.

As with robo-advisers, much of the service is automated. But crucially, those who want to speak with an adviser can do so – for free.

And unlike many of its rivals, OpenMoney does not solely advise on pensions and investments.

In fact, Morrow hopes that within a few years OpenMoney will become a “one-stop-shop” for those who want advice on a wide variety of financial products.

Tie-ups with Starling Bank and comparison site uSwitch will soon mean OpenMoney users can search for anything from credit cards and loans to utility and broadband deals. There are also plans to let customers switch bank accounts within the next year.

The breadth of OpenMoney’s offering was born out of Morrow’s belief that the definition of advice was too narrowly focused on investing.

“Most people in the street don’t even know what an Isa is, so financial advice to them is how to get out of debt and how to cut their spending,” says Morrow.

“What we want to do is remove that siloed approach to what financial advice is, trying to deliver a service to people so they don’t have to go to a debt charity for help.

Despite splitting opinion, robo-advisers are becoming an increasingly popular, low-cost option for young workers or those with smaller sums to invest.

Morrow has a deep-rooted belief that standards must be raised and that both the advice community and the FCA have major roles to play.

However, there are lingering concerns about the suitability of some of their recommendations.

The FCA hit out at robo-advice firms earlier this year for not gathering enough information about clients’ circumstances before recommending an investment.

Morrow agrees, believing that many robo-advisers are pushing people to invest who shouldn’t be.

OpenMoney, he says, tells more than 74% of their clients that they should not be investing, mainly because they have large debts or a lack of emergency savings.

“I was actually quite shocked in the beginning by how many people we were telling not to invest,” he says. “Unless they are getting a lot of customers that we are not getting, why should the number of people they recommend invest be much higher than us?

“It’s disgraceful position [for the robo-advisers to take]. We hear anecdotally that they have seen flows fall by as much as 50% since the FCA came out with what it did [about the suitability of their recommendations], which makes sense as they are fishing in the same pool as us.”

Morrow has a deep-rooted belief that standards must be raised and that both the advice community and the FCA have major roles to play.

“I would hope there is a lot of incentive for people to solve this problem,” he says. “We have record debt, minimal savings and a relatively small number of investors – it’s not exactly a healthy place to be in.

“We need to solve the problems with the advice industry – and there is no reason why it shouldn’t be able to.”

Paul Thomas, News and Content Consultant, MRM