Aamina Zafar considers how financial planning professionals can promote the value of advice to the wider public
The benefits of financial advice can be compared to fitness training, says one Chartered financial planner – the more bespoke the programme, the better the results.
Kusal Ariyawansa believes strongly in the value of financial planning and insists that clients can achieve their goals sooner if they enlist the help of a professional independent financial adviser, rather than attempting to do it themselves.
The Chartered financial planner at Manchester-based Appleton Gerrard Private Wealth Management says: “There are many ways in which you can achieve your financial goals sooner if expert help is sought and held to account. For example, to keep fit and strong I go to the gym at least once a week. The equipment there is self-explanatory. Unfortunately, after several years I noticed I was exactly where I was before, so I thought I’d take the plunge and paid for 10 sessions with a personal trainer. The change in me was shocking. In little more than a month, I had achieved more than in the previous two years. Doing exercise routines bespoke to me led to better results than picking activities at random. This is the same with your finances.”
His unusual analogy comes after Royal London research in April last year estimated that there are 39 million UK adults that fall into the advice gap. Interestingly, the study estimated that those who take advice are on average £47,000 better off after 10 years.
It also follows the Financial Conduct Authority’s (FCA) recent evaluation of how the Retail Distribution Review (RDR) and the Financial Advice Market Review (FAMR) have sought to improve the distribution of retail financial services products. The good news is that adviser numbers have increased from 35,000 in 2012 to 36,400 in 2019. Theoretically, more advisers should mean more Brits are accessing advice. Thankfully, this was reflected in the regulator’s findings, which stated that more people are now accessing advice – although the market still remains largely untapped. Only 4.1 million UK adults, which is a mere 8% of the population, have received financial advice. Although this is an increase from 6% in 2017, when just 3.1 million UK adults had accessed financial advice, it is only a small increase.
So, it comes as no surprise that the analysis found that many consumers are still holding their money in cash, which could instead be invested to provide potentially greater returns. However, these people have not sought or received help with their finances that would allow them to make better investment decisions. As such, the FCA is now championing the need for further innovation to help even more consumers make betteruse of their finances.
Sheldon Mills, interim executive director of strategy and competition at the FCA, says: “We want consumers to have access to high-quality advice and guidance at the right time in their lives, to give them the confidence to make better investment decisions.
“Our evaluation has found the advice and guidance market is moving in the right direction, but still has further to go. We will play our role to support the market to improve further, in the interest of more consumers.”
So why has the advice market remained untapped in the UK? According to IFA Anna Sofat, the profession has only targeted the very rich or elderly. This is echoed in research by her firm Progeny, which found that only one in four of 2,000 UK respondents quizzed in November 2020 said they had a financial adviser. Sadly, of the three quarters polled who said they do not have an adviser, 83% felt that a financial adviser ‘wasn’t for them’, while a third believed it was too expensive.
Ms Sofat, associate director at Leeds-based Progeny, says: “The industry has traditionally targeted only certain segments of the population, typically the wealthier and the elderly. Meanwhile, regulation is fragmenting products and services, which has also not served the public well.
“We need a lifestyle advice service that helps people to save for financial independence, commencing when people get their first job and continuing until they retire. Services aimed at improving financial wellbeing rather than focusing on financial products will be the future of financial advice, in my view.”
IFA Martin Bamford, director of client education at Informed Choice, also believes high cost is a major hindrance as many financial advice practices focus mainly on serving wealthy retirees, who have already accumulated significant wealth.
He adds that while his firm does not have a minimum level of asset requirement, its clients typically have in excess of £500,000 in their pensions and investments.
As a profession, we can take steps to address the advice gap by evolving business models to meet the needs of some demographic profiles, with technology-driven solutions that provide both financial education and advice at a cost-effective price point for the consumer
He says: “Reluctance to seek financial advice is the result of a combination of factors. Proper, regulated advice remains too expensive, in large part thanks to the spiralling costs associated with regulation and compensation. If the regulator genuinely wanted to close the advice gap in the UK, it would be a more effective regulator and stop the activity that piles on additional costs through Financial Services Compensation Scheme funding and professional indemnity insurance premiums.”
The profession’s reputation is also a factor in why many Brits are unable to appreciate the value of financial advice.
Chartered financial planner Haresh Raghwani believes there is still a feeling of public mistrust, going back 20 to 30 years.
The director of Berkshire-based Craufurd Hale Wealth Management says: “Recent media coverage regarding defined benefit advice with British Steel and peer-to-peer bonds means clients generally are wary. Trust plays an important part.
“The industry and the regulator need to educate people on the value of advice via social media channels, adverts, seminars and national campaigns. Advisers can help; however, it needs to be the whole industry and the regulator needs to get involved more. If RDR and FAMR are to be successful, the FCA needs to drive discussions with product providers, investment firms and advisers, to come up with a solution that means the public finds it easier to access advice.”
As new Chartered Insurance Institute president Peter Blanc was elected this January, he highlighted the importance of exploring customer needs that are not currently being fully met by the insurance and financial planning profession.
Mr Blanc said: “As a profession, it is vital that we get to grips with the cause of the expectation gap and how to better educate consumers around coverage. Having cover in place is essential if our customers are to do and achieve more in the years to come.”
Sarah Lord, president and member director at the PFS, echoes the importance of bridging the advice gap to help more people achieve their financial goals. She says: “As a Chartered financial planner, I find it so rewarding to see clients empowered through advice to have confidence in their financial situation and, importantly, achieve their goals. There is such a need in society for financial education and financial advice, but sadly there continues to be a significant advice gap.
“As a profession, we can take steps to address the advice gap by evolving business models to meet the needs of some demographic profiles, with technology-driven solutions that provide both financial education and advice at a cost-effective price point for the consumer.”
The Covid-19 pandemic has sped up the profession’s move to a more digital world. At the same time, the FCA Advice Unit has focused on helping firms develop new automated advice models. This has proved to be popular, as the regulator has received 137 applications for support, but it has only accepted 65 so far.
Although offering more online services has the power to reach a wider audience, limited knowledge in inexperienced hands can also prove to be problematic, according to Chartered financial planner Ricky Chan. He believes the rise of ‘robo-advice’ and online investment DIY platforms have meant that many people try to manage their own investments, which often incorrectly places a low value on financial advice.
He adds: “The benefit of working with an independent financial adviser is often perceived as something for the very rich and the benefits of financial planning are not as well known, compared to in the US. The rise of online investment DIY platforms and investment managers mean that many will try to manage their own investments, and often incorrectly have a low value placed on financial advice.”
The director at London-based IFS Wealth & Pensions adds that reducing red tape is the key to narrowing the current colossal advice gap.
Mr Chan says: “Reducing red tape and cost would make financial advice more accessible. Also, the government should consider using some of the fines paid by financial services firms to improve financial education of the public and subsidise financial advice for the less well-off. For example, a £500 financial health-check voucher, instead of HM Treasury simply pocketing it.”
Aamina Zafar is a freelance journalist