With the cost of living crisis hitting the UK hard, it is no wonder that the advice gap still seems to be growing. 73% of financial advisers believe the gap between those who get financial advice and those who want it has expanded over the past five years.
Another study by Royal London showed that only 26% of the country seeks financial advice, leaving almost three-quarters of the population out of the benefits received from advice.
How can financial advice help?
- Help people feel more confident about their money and the future
- Help plan ahead with expectations for changes such as inflation, market decline and healthcare
- Develop a personalised investment strategy
What stops customers from accessing financial advice?
According to the FCA, customers would need at least £10k of investable assets before needing professional financial help. But advisers state that, on average, customers would need closer to £48.6k before many advice firms would consider taking them on as clients. Why is that?
While measures were taken to improve the standard of financial advice provided, the resulting benefits have also driven up the costs. The cost of regulation, technology and compliance has made it difficult for advisers to support less affluent customers while maintaining a viable commercial model.
Other than the cost factor, many shy away from getting financial advice because of the following reasons -
- Lack of trust in advisers and in their ability to manage money and offer good financial advice
- They consider financial advice as a non-essential service and not something that they can’t manage on their own
- They’re confident in doing everything digitally, and the lack of digitalisation in the advice sector is off-putting
Though not everybody requires regulated financial advice, the right level of support is needed for people to understand their financial potential.
What are some of the ways we can bridge the financial advice gap?
There is a general misconception and confusion about what advisors do and how they contribute to wealth. With basic financial education, millions of non-advised customers could take advantage of the benefits of money advice. Efforts are being made to address this through government initiatives, financial education programs, and the use of technology.
Here are some of the ways we can bridge the gap -
The FCA recently set out new proposals to prevent in-person financial advice from being too costly and improve overall access to financial advice. Some of the recommendations the regulator is consulting on are -
- Streamlining the customer ‘fact find’ so the advice is more straightforward for both firms and customers
- Limiting the range of investments within the new regime to mainstream investments within stocks and shares ISAs, so the advice is easier to deliver and understand
- Making the qualification requirements for the new regime more proportionate so delivering simplified advice is less costly for firms
- Allowing advice fees to be paid in instalments so large upfront bills don’t burden customers
Improving financial education
Educational programs that teach basic financial concepts can increase financial literacy, empower people to make informed financial decisions and learn more ways to manage money better. Governments can also encourage access to financial advice by funding educational programs and initiatives.
Harness the power of technology
Financial advice firms can embrace different ways customers can access advice. For example, robo-advisors are a low-cost alternative to traditional financial advisors. Though they cannot offer the level of customisation a human advisor can, they are easy, accessible, and straightforward, offering full access to portfolio management tools.
The primary barrier, however, is the lack of basic understanding about the role of advisers and the free guidance resources available to the public. But it's important to note that bridging the financial advice gap requires a multi-faceted approach involving the combination of changing regulations and advances in technology.