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What should ‘holistic advice’ really mean?

Article by AMI Chief Executive Robert Sinclair, published in Mortgage Strategy.

There is a lot of noise being made within the industry on the need for holistic advice.  This is in the investment and pensions community but has also surfaced more recently in the world of mortgages and protection.  This has been thrown into deeper focus as firms have looked at their product and service propositions through the lens of Consumer Duty as they strive to isolate what it might be required to ensure delivery of good consumer outcomes.

My starting point on this is the FCA handbook.  The rules deliberately allow firms to limit the areas on which they will advise, isolate their offering in terms scope of service and restrict the product types and the providers that they will offer.  This affords them safety in terms of not having to cover all parts of the financial services landscape and by specialising be clear about the areas where they operate.  This potentially limits their liability and allows them to afford Professional Indemnity Insurance which is required for them to operate.

However, the rules are also clear that despite being permitted to limit scope of service and offering, where another solution might be more appropriate, historically known as a “product gap” then that should be advised to the customer.  The rules are also clear that any firm must make clear the product and service offering it is delivering early in any engagement.

It appears to me that the drive for holistic advice is coming from two particular sectors.  Some have opined that it is because both markets have fundamental concerns, but the debate converges on the opportunities surrounding lifetime mortgages. 

The defined contribution pension market has a host of people reaching “retirement” with such limited amounts saved the customer will be wondering why the benefits accrued often only match their lost additional state benefits.  For many, their biggest asset is the equity in their property, so to provide an advised solution, “holistic advice“ is required to mould an income stream from all the customer assets.

Secondly, as “Equity Release” has encountered significantly higher interest rates, lowering capital availability for borrowers and significantly limiting the market – we have seen an expansion into lower age ranges and the development of what are known as “hybrid products” – where the interest can the covered.

These issues, including the advent of the requirements of Consumer Duty, have raised a clamour for “holistic advice”. By this, what is meant is all product options be considered for all potentially eligible consumers, irrespective of the marketing and advice proposition of the firm.  My view is that we should focus on advice.  That advice should start with consensus with the consumer on both what they want and what they need.

Consumers do not understand our industry, our frameworks or how regulation protects them and firms.  They have needs that they look for us to fulfil.  Too often we have products being shoe-horned towards customers where the solution barely fits.  Recent publications from the FCA should give all firms opportunity to focus on what they see as better answers.

Holistic advice is not having a comprehensive discussion with a consumer about all their financial needs.  It is about ensuring that within the specific need they are focussing on the adviser considers all options, even those outside of their product or service offering.  Where those are more appropriate the customer is either handed over or sign-posted to that alternative or better solution.

So in the world of mortgages it is ensuring that those who are talking about mainstream loans, understand enough about seconds, lifetime, shared ownership, bridging, to deliver the best outcome.  In lifetime firms it is ensuring that where a conventional mortgage might still be relevant then that is pursued.  Holistic for me is building the pathways to ensure that even where the adviser has a single solution, there are pathways to migrate the customer to the alternative if that is best for them.

I look at modern AR networks and they have partnerships, training and monitoring to ensure that a full range of solutions are available to all firms.  I am beginning to see similar developments in the better firms who populate the lifetime market.  Our mortgage clubs are also now stepping into this space to ensure education and pathways.  This evolution will keep us safe, holistic is not a holy grail but a direction of travel that we are already embedding in the journey.


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