2.1. Objectives of the Working Party and This Paper

As the Advice Gap in the UK Market working party, we were set up with the objectives of:

• Evaluating the emergence of an advice gap post-RDR.

• Assessing market distribution mechanisms by wealth segment.

• Researching product choice and complexity in the new environment.

• Considering adverse consequences of advice gap and two-tier market for consumers and society.

• Highlighting potential solutions and mechanisms to mitigate regulatory and market failure.

As a working party, our key goal has been to demonstrate how the advice gap could be reduced if the ideas and conclusions of the research are followed. As part of the working party’s research, a survey was conducted with the Profession during 2023, which included sharing the survey on IFoA Communities and at the Life Conference.

In this paper, we present our preliminary thoughts and recommendations. We welcome feedback and debate. Some of the recommendations will cost something to implement and should therefore be supported by cost-benefit analyses that would weigh these costs against the potentially larger benefits to customers and society.

The paper also highlights similar initiatives from other countries.

2.2 Setting the Scene

The advice gap has been widely publicised across the financial services industry and this paper largely references the research that has been done in this area. “Advice gap” is a generic term that is used across the segments that Life insurers operate, such as savings, investments, pensions and protection. It can be argued that each segment is affected by the advice gap either in the form of lower penetration or insufficient provision that inadvertently causes customer harm.

Before highlighting how the advice gap has evolved following the regulatory changes such as the RDR in 2012 and the Pensions Freedom in 2015, it is good to set out the challenge that the industry is facing across the four segments by considering the most up-to-date market developments such as the cost-of-living crisis.

A further catalyst going forward will be Consumer Duty, which will help companies to align their business models to better support customers and deliver value for money with good customer outcomes. However, even gold-standard conduct rules will not be sufficient to close the advice gap. It is equally important to have demand-side initiatives, as highlighted by the report “The Land that RDR Forgot” (AC, 2024). Building trust, improving financial literacy, and taking the route that will help break customer inertia will support the penetration and growth of financial provisions, which should result in a smaller advice gap.

The enhanced transparency that Consumer Duty will bring will help build trust by acting to deliver good outcomes for retail customers; for example, by highlighting how best to serve vulnerable customers. It can be argued that any customers that are not serviced by the right advice channel, leading to poor customer outcomes, implies non-compliance with Consumer Duty. Secondly, although the industry has a good track record of customer conduct stemming from principles for Treating Customers Fairly (FSA, 2006), the regulator’s proactive approach in light of Consumer Duty has spurred some new activity. For example, following an FCA warning (FCA, 2023a), AJ Bell decided to pass higher interest rates to its customers (CW, 2023). Furthermore, St. James’s Place had to make a provision of £426m to refund customers who paid for a service they did not receive (FNL, 2024).

We do not believe that it would be sufficient to take a bottom-up approach to consider the different product segments in order to address the advice gap. Life insurers are just one provider of financial services. The advice gap can be interpreted differently across banks, investment platforms and financial advisers themselves. We understand that there is a broad consensus around the Advice Guidance Boundary review from industry players, as highlighted by Altus Consulting (AC, 2024).

This paper will focus on the advice gap from Life insurers point of view.

2.2.1 Savings

The UK and developed markets have experienced a sudden and steep rise in interest rates due to high inflation after the pandemic, which has shifted the emphasis of macroeconomic policy to essentially tame inflation without dampening growth prospects. One monetary policy to achieve this was Central Banks raising interest rates, which made interest rates on short-term deposit accounts more attractive after years of low interest rates.

As a result, and as can be seen from the FCA’s Cash Savings Market Review (FCA, 2023b), there has been a step change of the growth trend in household deposit balances after the pandemic. This is despite the subsequent cost-of-living crisis. Figure 1 below shows this trend.

Figure 1. Total household deposit balances Jan 2008 – May 2023, £million.

It can be argued that this was a result of the higher household savings ratio due to the pandemic, when economic retail activity was limited, and government support measures were in place to protect the financially vulnerable. In practice, the growth in deposits happened at a time where there were cases of lack of full pass-through of the BoE base rate to the deposit rate by some providers, which customers could have enjoyed.

Some customer segments missed out on high interest rates, and in some cases the FCA had to step in to ensure this was addressed in relation to the value for money assessment of Consumer Duty. But more worryingly, the FCA stated that “Bank of England data estimates that approximately £250bn in deposits do not earn any interest. Three in ten adults (15.9 million adults in total) do not have a savings account of any type, an increase from 24% in 2020. This highlights the need to focus on building more consumer financial resilience in the UK.” The FCA continues: “Of these, the survey found that 18% of all UK adults (or 9.5 million) did not own any savings products but may have had some capacity to save.” (FCA, 2023b)

Savings rates often go down quickly when interest rates fall. However, they are slower to rise when interest rates increase. This can penalise cash savers, which will often include lower-income households who might not have any other accounts. As a forward-looking view, the advice gap, and more specifically ongoing advice where relevant, may become more significant when the interest rate cycle starts to return to low levels in the coming years.

The FCA goes on to point out that “…firms can support their customers to access the free advice available from MoneyHelper” to address this issue. Another useful source of advice is Money Saving Expert (MSE, 2025). This is consistent with the advice gap that has been set out by citizens advice under “the free advice gap.”

2.2.2 Investments

As pointed out in Section 2.2.1, for a complete understanding of the wealth market, and to put the advice gap into context, the investment segment needs to be covered as well. Retail funds under management were at £1.6 trillion at the end of 2021, which fell to £1.4 trillion in 2022. Although this was primarily driven by poor asset returns, net outflows also contributed to the decline, as highlighted by the Investment Association’s UK Fund Market Review 2022 (IA, 2023). Figure 2 below shows this trend.

Figure 2. UK adviser and direct platform net sales 2020-2022, £billion.

The net outflows can be attributed to many causes, including the impact of the material number of people aged 50+ that decided to take early retirement at this time and switch to decumulating investments. However, exiting an investment product when markets are down or volatile may not be the best course of action, depending on customers’ circumstances. According to the report, the direct channel had exhibited net outflows two years in a row, whereas financial adviser channels had experienced outflows only in 2022. The report goes on to explain the role that advisers played in helping this: “…financial advisers can have an important steadying influence on investors in times of market volatility, encouraging investors to remain invested and to follow their long-term financial plans.”

There are several factors to consider for an effective advice model, which can be transient as people experience life events and react to market uncertainty. The industry has been working on several solutions to address the advice gap, most recently by defining the advice/guidance boundary as led by the FCA. Within the review, more cost-effective solutions are being considered such as the “targeted support” and “simplified advice” (FCA, 2023c). These are not as comprehensive as the existing holistic advice model but can be beneficial if combined with the face-to-face and digital tools, even with lower levels of financial adviser qualification.

However, as highlighted in the “The Advice Gap 2023” report by The Lang Cat (LC, 2023), trust is of equal importance as value for money for customers to take advice. This is being acknowledged as a top objective in the FCA Advice Guidance Boundary Review – a key ingredient to create demand for adviser services.

In any case, the industry would require further safeguards under the new advice model coming out of the Advice Guidance Boundary Review framework (FCA, 2023c), whether targeted support or simplified advice, in order to reduce liability risk from the FCA or the Financial Ombudsman Service.

2.3 A Ban on Commission Naturally Leads to a Gap in Advice and Potential Underinsurance

We have seen this already occur in the UK as an unintended consequence of the RDR in 2012, which prohibited commissions on insurance products (FT, 2022a). The move from traditional commissions to fee-based advice has led to a two-tier market:

• One for the masses with simple standardised products where the processes and administration can be automated as far as possible with some online servicing.

• The other side of the market has aimed towards the high-net-worth individuals who require complex products to meet their complicated needs. Advice will still be needed, and they will be willing to pay for that advice.

This gap in the market is widening in the retirement space, whereby wealthier retirees have access to various complicated retirement solutions such as self-invested personal pensions and drawdown solutions, while there are fewer options for those who have smaller accounts, other than to take their accounts in cash or take out a traditional annuity. This is compounded by the high cost of advice currently.

In addition, smaller pensions are less likely to be able to absorb risks than larger pension pots, which may mean that the scope for higher returns is more limited for these smaller pensions.

This was not entirely unexpected. In May 2012, seven months before the RDR came into force, Deloitte commissioned a survey of 2,000 UK adults to understand how consumers would react to the new rules, which would replace an advice framework based largely around commissions (Deloitte, 2012). The survey suggested that as customers became more aware of adviser costs, many would opt out of advice completely, partially opt out, or seek higher levels of service for the charges they would incur. At the same time, Independent Financial Advisers (IFAs) and bank advisers would deprioritise a large proportion of their customers based on their understanding that customers with lower levels of savings would be less likely or able to pay adviser charges.

In the early 2010s, the major banks either exited advice, except for medium-/high-net-worth clients, or moved to a restricted advice model. (MM, 2011, 2012a, b, c, d)

In 2013, Cass Business School concluded that because of the UK’s RDR, a UK investor with less than £61,000 in investment funds is no longer commercially viable for investment advisory services (CBS, 2023) (note that approximately 75% of the UK adult population would have less than this amount to invest). In 2020, research commissioned by Royal London found that advisers would expect, on average, a savings pot of £48,000 to consider taking them on as a client (RL, 2021).

This contrasts with the statement from the FCA that “… customers who have £10k investible assets may need some form of professional support to help them manage their finances” (FCA, 2022). £10k is not high-net-worth, so this shows that large segments of the population may have a need for professional advice.

In its 2016 report on the Financial Advice Market Review, the FCA indicated that, over the previous two years, the proportion of firms who ask for a minimum portfolio of more than £100,000 has more than doubled, from around 13% in 2013 to 32% in 2015. The FCA’s survey of advisers also supported this, suggesting that 45% of firms very rarely advise customers on retirement income options, if those customers have small funds (i.e. less than £30,000) to invest (FCA, 2016). In addition, there is evidence that advisers are turning clients away. According to the FCA, 69% of advisers said they had refused clients access to advice, with this being attributed to the client’s financial situation in 43% of cases.

This reflects the administrative burden that the regulators have put on firms to guard against mis-selling. This increases costs for firms and makes them more cautious in offering advice. Firms may conclude that offering advice only makes sense for larger portfolios.

The latest developments with the Advice Guidance Boundary Review may help to create a third tier with “targeted support” that can fill this gap, to be able to provide a form of generic advice based on “people in your circumstances” for customers with savings at the £10k level. We shall discuss this further in Section 6.

2.4 How Big is the Advice Gap?

According to the FCA (FCA, 2020a), there are over 5,000 advice firms and 27,000 regulated professionals advising on retail investments and pensions.

In addition, 4.1 million UK adults had accessed financial advice in 2019 (up from 3.1 million in 2017), and 56% of consumers reported being satisfied with the advice they had received (up from 48% in 2017). The average advised customer has over £150,000 of assets under advice.

The FCA’s research found that 54% of UK adults with £10,000 or more of investible assets, around 8.4 million people, did not receive any formal support to help them make investment decisions in 2022. Of those consumers with more than £10,000 of investible assets, 37% did not have any investments at all and were holding their assets entirely in cash, and a further 18% were holding more than 75% of their investible assets in cash. (FCA, 2023f).

Similarly, the FCA has found that only 8.6% of UK adults have received financial advice in 2024. Figure 3 below shows the trend in advice from 2017 to 2024 (FCA, 2024a).

Figure 3. Adults who have received financial advice over the last 12 months.

Citizens Advice undertook research in 2015 from the consumer perspective (CA, 2015), and have identified four advice gaps:

• The affordable advice gap affects consumers who are willing to pay for advice but not at current prices. Research suggests that up to 5.4 million extra people would consider paying for advice if it cost less.

• The free advice gap affects people who want advice but are unable to pay for it. Up to 14.5 million people who think they would benefit from free advice haven’t taken any in the past two years. The free advice gap includes:

  5.3 million people who have needed free advice in the past two years but haven’t taken it.

  735,000 people who have tried to access free advice in the past two years but couldn’t, due to lack of supply.

• The awareness and referral gap affects people who are not aware that advice exists, or where to get that advice. As many as 10 million people who think they would benefit from free advice are not aware of public financial guidance. The awareness and referral gap includes:

3.3 million people who say they need free money advice but failed to get it because they didn’t know it existed or where to get it.

3.4 million people who have raised a financial issue with a trusted professional at some point but were not given help or were not told where to find it.

• The preventative advice gap affects those who would benefit from having money advice as a preventative measure. We found that as many as 23 million people have fallen into a preventative advice gap at least once in their life:

39% of people who have expected a baby would have taken money advice if it was offered.

1.2 million people who have taken paid for or free advice in the last two years have not had the non-financial causes of those problems addressed.

Open Money carried out research in 2019 and 2020 to highlight the change in the four advice gaps since 2015 (OM, 2020).

• The affordable advice gap remained steady at 5.3 million.

• The free advice gap has increased to 20.8 million.

• The awareness and referral gap has increased to 15.1 million.

• The preventative advice gap has fallen to 20.8 million.

They conclude that the advice gap remains significant and that the need for accessible, affordable – and in particular free – advice has never been greater.

This need is reflected in the increasing free advice gap, with an estimated 20.8 million adults who would potentially benefit from advice unaware of free advice services or unable to access them, an increase of 1.1 million over the previous year, and more than 6 million since 2015.

More recently, the FCA’s Financial Lives 2022 report (FCA, 2023e) concluded that:

• 4.3 million people received information from their provider that they could not understand, was not what was needed or was not timely.

• Over the same period, 14% of adults who held one or more financial products – or 7.4 million people – unsuccessfully attempted to contact one or more of their financial services providers.

• 3.6 million people were able to contact one of their financial services providers but could not get the information or support they wanted.

• Seven in ten adults (71% or 38 million) did not receive support about investments, pension-saving or retirement planning in the 12 months to May 2022 – up two percentage points on results for the year to February 2020. Support includes regulated financial advice, for example, from a financial adviser or an automated advice service, or information or guidance to help them to identify their options and narrow down their choices.

• 91.7% (49 million) of adults had not received regulated financial advice in the previous 12 months – down 2 percentage points since 2017.

• Use of regulated financial advice increases with wealth. For example, almost one in three (31%) adults with investible assets of £100,000 or more had had regulated financial advice in the last 12 months, compared with just 2% of adults with less than £10,000.

2.5 Other Countries

In 2013, a commission ban was introduced in The Netherlands for the distribution of complex financial products like Life insurance products. Research indicates that consumers with a below-average income often look for information themselves to avoid the costs of financial advice (Nibud, 2017); and that the willingness to take financial advice is considerably lower under the new regime (Decision, 2017; de Jong, Reference de Jong2017; PWC, 2017; Kramer, Reference Kramer2018). According to Kramer: “Our results show that we should expect an advice-gap to emerge in the new fee-based compensation regime among households low in financial literacy. If we assume that households low in financial literacy would benefit from financial advice, this is a worrying result from a policy perspective.”

Foreign regulators and commentators are also taking notice of these developments, for example, the US Department of Labor’s original proposed Fiduciary Duty Rule, which would ban commissions on certain individual retirement account products, including some variable annuities and fixed interest annuities, unless exempted subject to strict conditions (IN, 2014; DoL, 2016; Brodsky, Reference Brodsky2022; NYT, 2024).

In Australia, a Royal Commission into misconduct in the banking, superannuation and financial services industry during 2018 investigated whether any conduct of financial services entities might have amounted to misconduct and whether any conduct, practices, behaviour or business activities by those entities fell below community standards and expectations. One of the recommendations was for a reduction in the cap on commissions in respect of life risk insurance products. Unless there is a clear justification for retaining those commissions, the cap would ultimately be reduced to zero. There was lengthy discussion in the market as to whether this would lead to an advice gap and an increase in underinsurance (CA, 2020). For example, research indicated that 3 in 5 advised clients believe removing commissions will increase underinsurance (AIR, 2019). As of 2022, research indicates an advice gap of 12.4 million Australians having unmet advice needs (PP, 2022).

In February 2023, the Australian Government recommended maintaining commission caps at current levels, stating that “there is a very real risk that banning insurance commissions would mean that fewer consumers would receive advice about insurance and that fewer people would have the insurance cover they need” (AG, 2023).

In New Zealand, regulators have taken stock of these developments. Despite restrictions on specific incentives, there is an understanding that a full ban on commissions may not be appropriate. According to Deloitte (Deloitte, 2020), “A ban on commissions could significantly reduce access to insurance advice for customers and has the potential to further exacerbate the underinsurance issue in New Zealand.”

Finally, as part of its Retail Investment Strategy proposals, European bodies have considered banning inducements on all retail investment sales (which would include retail insurance products). During the consultation process, industry and political bodies and member states have debated and lobbied over the merits and pitfalls of an outright ban on inducements (DDV, 2021; GBIC, 2021). For example, the German Finance Ministry stated that they were “strongly concerned that a general ban would inhibit the provision of investment advice in cases where it is mostly needed” (BF, 2023). The final proposals include only limited restrictions on inducements in specific cases.

3.1. Demand and Supply Side Considerations

According to the FCA (FCA, 2020a), a combination of factors – both on the demand and supply side – can help explain why people do not seek or receive services (which could be advised or non-advised) that might help them to consider their investment options.

3.2 Customer Needs

Most people are comfortable making less complex financial decisions without getting advice, such as buying car insurance or taking out a cash ISA. But, for decisions they see as more complex, such as deciding to invest in a Stocks and Shares ISA, most would value some support, although generally just on a one-off basis.

While use of support services has increased slightly in recent years (up from 26% in 2017 to 28% in 2020), many consumers do not use the services that are available in the market (FCA, 2020a). Furthermore, there are specific challenges to consumers’ engagement with automated services (which have only been used by 1.3% of UK adults in the last 12 months).

While most consumers (55–67%, depending on the type of guidance) who had used guidance found it to have helped “a little”, only a minority (14–34% depending on the type of guidance) found each of the guidance or information sources to have helped “a lot” in enabling them to make a decision.

3.3 Cost of Advice

A 2015 survey indicated that retirees were willing to pay an average of £253 for advice, which is only 1–2 hours of advice at average hourly fees (MM, 2015).

More recently, the FCA concluded that most would expect to pay no more than £250, regardless of the amount invested. These responses on willingness to pay do not align with adviser charges generally seen in the market. Figure 4 below shows the amount of money non-advised adults who may need support would be willing to pay, and see as good value for money, for advice from a regulated adviser (FCA, 2020b).

Figure 4. Amount of money non-advised adults who may need support would be willing to pay, and see as good value for money, for advice from a regulated adviser.

3.4 Lack of Trust

According to Lang Cat (LC, 2023), the biggest issue for the advice sector is still a lack of trust. Among those who haven’t paid for advice in the last two years and are unlikely to do so in the future, being sure they could trust the advice topped the list of things that would need to change, with almost two-fifths (38%) selecting this, rising from 32% in 2021.

Furthermore, more than three million UK adults would pay for advice if they were sure they could trust it. Trust needs to be improved in the advice profession, through adviser trade bodies, individual advisers and encouraging referrals.

The FCA in its 2022 Financial Lives Survey (FCA, 2023e) state that trust in, and the perception of the independence of, financial advisers could be a barrier to seeking advice for many consumers that might have a need for advice. In 2022, only one in five of these non-advised adults (21%) agreed that financial advisers are unbiased (4% strongly agreed and 17% slightly agreed). Less than half (45%) trusted financial advisers to act in the best interest of their clients. Six in ten (59%) said they thought of financial advisers as professionals like solicitors or accountants, but only 21% strongly agreed with this.

Interestingly, in the same report the FCA states that 58% of those receiving financial advice had high levels of trust in their adviser in 2022, and few (13%) had low levels of trust. This seems to indicate that the perceived lack of trust in financial advisers is perhaps more of an issue than the actual level of trust in practice.

We can conclude that there are several factors that affect the size and robustness of the advice gap in the UK market. The most important of these are the perceived lack of trust in financial advisers for a large proportion of consumers that might need advice, and the cost of advice, which is seen as disproportionate for many.

5.1 Utilising the Consumer Duty as Principle

Before exploring specific strategies to enhance Tier 1 and establish Tier 3, it is important to consider the regulatory framework that will guide these changes. This is perhaps the most important point that we should bear in mind to fill the gap.

Under the FCA’s new Consumer Duty, firms must act to deliver good outcomes for retail customers, by ensuring that customers receive the appropriate product type and investment choices to meet their needs. Firms must act in good faith towards customers, avoid causing them foreseeable harm, and enable and support them to pursue their financial objectives through information and guidance (FCA, 2023h).

A key part of the Consumer Duty is to ensure that customers receive fair value. In fact, a manufacturer must “ensure that its products provide fair value to retail customers in the target markets for those products” (FCA, 2023i). If commissions were to be reintroduced in some form, for example by allowing customers the option of paying for advice via product charging, firms would have to ensure that such a mechanism provided fair value to customers in the target market and ensure that the costs and mechanism for charging for commission were clearly disclosed and not misleading. Under this approach, customers would have the choice of paying for advice directly, via a fee, or more indirectly, through product charges. Provided this was understood, and the resulting product provided fair value, surely this would be an improvement on an approach where a significant part of the population was priced out of the market for advice completely?

The FCA has mentioned several times that Consumer Duty is not a price-setting regulation where companies need to demonstrate their costs against services provided to customers. A second factor to be considered is competitor benchmarking. However, value for money assessments can be a subjective exercise in the absence of relevant data. In addition, competitor benchmarking may not work due to the nature of different channels serving different customer segments.

For example, it would not be a like-for-like comparison to compare the charges for a face-to-face financial adviser channel with the direct channel. And as discussed within “The Land that RDR forgot”, customers’ needs will be met via different channels throughout their lifetimes. It would be natural to expect some transition across different levels of advice, especially toward later-life planning. It is interesting to note that a number of wealth managers have changed course from a fully direct model to a “hybrid” advice model (FT, 2022b).

Consumer Duty has also opened a potential discussion point around whether commission should be allowed again, given that manufacturers and advisers need to demonstrate value for money. There is no indication yet concerning moving towards reintroducing commission, but it will be interesting to see how this develops in the future.

As a final note, Consumer Duty can be the catalyst to address the advice gap by motivating more efficient advice models, such as those discussed under the Advice Guidance Boundary Review.

5.2 Enhancing Basic Market and Establishing Middle Market

With Consumer Duty in mind, we now focus on solutions that should strengthen Tier 1 (Basic Market) and build a Tier 3 (Middle Market).

Tailoring Advice Levels to Consumer Needs: Someone who wants to take out £10,000 of cover has different needs to someone taking out £10 million of cover and thus requires a different level of advice (FT, 2024a). Having “light touch” and “full” advice could be an option, though consumers need to be clear from the outset that “light touch” advice is not as detailed as “full advice” (to reduce the regulatory burden on advisers offering “light touch” advice) and that one-off advice is not the same as wider planning.

Clarify the advice/guidance boundary. The role of guidance should be to educate and support consumers throughout the process, to help them make their own decision (FT, 2024b). This is different to personalised advice. And as one respondent to our survey commented, “Firms need clarity from regulators on boundaries between advice and guidance.”

In its Advice Guidance Boundary Review, the FCA supports this, stating that: “firms should not be reticent to provide such support simply because they are being overly cautious about coming closer to the personal recommendation boundary” (FCA, 2023c).

The purpose of this is to encourage firms to do more under the existing framework, providing them with more certainty.

Targeted support: Many consumers experience the gap between information or guidance and regulated financial advice (FCA, 2023e). Targeted support could bridge this gap, using limited personal information about a customer and their circumstances to provide support and help consumers to make an informed decision. It could result in an insurer suggesting options to consumers based on “people in your circumstances”. Consumers would need to understand what this new type of support is, and how it is distinct from simplified or holistic advice. They would need to understand that the product offered through this service is for “people in your circumstances”, rather than an individually personalised recommendation (PA, 2024).

A new means of consumer support may add further complexity to the existing advice landscape. There may be instances where the consumer ends up receiving both targeted support and holistic advice. The FCA is consulting to prevent potential for consumer confusion and potential harm where consumers receive both services (FCA, 2024a).

It will be necessary to gather more limited information, to ensure the support is appropriate to a broader target market, to which the individual customer can be identified as belonging. New standards would reflect that this targeted support would be less bespoke than individual advice. Targeted support would be intended to provide customers with a better outcome than would be expected without this support. Robust product governance would be needed to ensure that providers make suggestions that are appropriately tailored to a target market when offering targeted support.

Simplified advice. This is a one-off service, where the firm would only consider relevant information about a specific customer need. This could be suitable for customers with simpler needs, although it is crucial that customers understand the nature and limitations of simplified advice before receiving a financial service. Regulatory safeguards would need to be in place to protect against unsuitable consumer outcomes.

One type of targeted or simplified advice could be robo-advice. Consumers can use for example robo-advice to get generic advice on protection products and what might be suitable for them. This may make protection more understandable and accessible to a wide range of people. An area for additional research should focus on why robo-advice is not used by more people. As of 2022, only 1.5% of UK adults have used robo-advice (FCA, 2023e).

Flexible remuneration models. Perhaps making the fee less central to the advice conversation might put customers off less than the current approach. Perhaps commission could be offered to customers as one option for intermediary remuneration, as long as this was offered with full disclosure of the cost and amount of commission, and how it would be charged. The FCA agrees with this (FCA, 2023c), stating that: “allowing advice charges to be included within product or platform fees reduces transparency to consumers, and it is important that the total cost of products and services are adequately disclosed to consumers in any new fee models.”

Better advertising of government’s free financial guidance service (MoneyHelper) coupled with increased funding and investment to increase capacity. This is free and publicly available, though not enough people are aware of it. Work with government to boost the awareness of this service. Also work with government to come up with a clear referral system to point people towards financial advice at key life stages.

Improve financial education in schools. Young adults typically show the least engagement with their financial situation. More financial education is needed in schools, to give people the tools to make better financial decisions. This financial education should then be carried into the workplace, so that people can engage with their finances in a positive way and develop financial resilience.

5.3 Technology-Driven Solutions

To further fill the advice gap, we consider placing more emphasis on technology-driven solutions.

Technology can create platforms that blend community-driven insight with professional oversight. For instance, develop a forum (Insurance Community) with appropriate monitoring and policing and an AI tool (Robo-Advice) for the insurance industry based on Money Saving Expert or MoneyHelper.

This could focus on: filling the gap for the low-income group, because they are most significantly affected by the commission ban; enhancing public understanding by using technology; and filling the advice gap by building connections between potential policyholders and providing them AI-based advice.

One respondent to our survey supported this kind of approach, stating that “Technology and automation of advice in conjunction with government advice services (e.g. Money Advice Service) should be explored – it should lead to better outcomes than people being uninformed about their choices and the risks they are exposed to.”

In our view, the forum should include the following features:

1. 1. Multi-end interaction.

   1. a. Allow people to communicate with each other about the insurance product they have bought or are going to buy.

   2. b. Allow people to write and view posts with their opinions about certain products or types of products.

   3. c. Allow people to rate the posts with their own judgement.

   4. d. Allow firms to participate in content co-creation with consumers.

   5. e. Allow people to benefit from posting well-received content.

2. 2. Provide a fine-tuning AI tool inside the forum. For example, develop personalised recommendations which combine product information provided by firms and the stated preferences of customers.

3. 3. The forum’s interface should be easily navigable and straightforward to understand. A good example of such an interface is the existing MoneyServiceExpert.com website shown in Figure 5 below (MSE, 2024):

Figure 5. MoneyServiceExpert.com website.

Creating an insurance-tailored AI tool to give advice may be more efficient than designing a website that draws in users. Perhaps the biggest challenge is building people’s trust in the quality and integrity of AI-driven advice and each other’s posts and motivating them to visit the website. The goal is to make the website useful and profitable for both the insurance company and potential customers looking to buy an insurance product underpinned by good customer outcomes.

6.1 Utilise Consumer Duty

6.2 Clarify the Advice/Guidance Boundary

6.3 Flexible Remuneration Models, Including Reintroducing Commissions

6.4 Targeted Support

6.5 Robo-Advice

6.6 Insurance Community