Everyone is acknowledging the UK’s burgeoning ‘advice gap’ but few are talking about how to bridge it. That is not surprising because no one has come up with a solution, at least not in the UK.
The advice gap is the gulf between expensive, post-RDR wealth management services, restricted inevitably to an elite, and the kind of everyday, common-sense financial advice millions of consumers might realistically afford.
One of the side effects of RDR has been a collapse in mass market financial advice. The banks have hoisted the white flag and headed for the hills to regroup, most of the insurance and investment providers have done the same or are quietly building their own advice arms, and plenty of advisers have called it a day permanently.
The disappointing aspect of all this is that it turns out, after all, that the public actually wants financial advice and values it.
A survey of 2,000 people in October by the ‘find an adviser’ service, unbiased.co.uk, found that consumers still seek financial advice, despite suggestions to the contrary.
According to unbiased almost one in five Britons (19 per cent) have sought advice from an independent financial adviser in the past five years, rising to almost a quarter (24 per cent) of the nation’s over-60s. Some 29 per cent of British consumers say they have sought advice from a financial adviser in their lifetime and unbiased says banks, friends and independent financial advisers top the list of the first places for people seeking advice.
Unbiased found that the more complex a consumer’s financial situation, the more likely it was they would seek advice. Sipps, annuities and inheritance tax planning topped the areas where consumers most wanted advice and felt least confident about going it alone.
Perhaps they do not need advice so much any more for other, simpler products. Our increasingly digital-savvy population sees the internet, and the vast amount of ‘search’ information it can offer, as a daily part of life, not a new-fangled invention.
We have had personal finance websites since the 1990s, that is two decades of financial guidance and online selling in some form. Web-savvy consumers are perfectly happy searching for a good mortgage rate or a top Isa cash account. There may be little real value in an adviser being involved.
When it comes to selecting and managing a Sipp or running a portfolio, it is a different kettle of fish.
But the advice gap is about more than just finding an adviser, it is also about the affordability of advice.
Several people have asked me in the past how they can find a private bank. I often replied: Don’t worry. If they want you, they’ll find you.
That is because providing full service advice and wealth management to affluent and rich consumers can be a very profitable business.
Unfortunately the majority of the population are more Ford Fiesta (Britain’s top-selling car) than Bentley and good quality advice is simply out of reach for the majority of the population who cannot afford thousands in fees.
Many influential advisers have spoken recently about the need for a simple, direct-to-consumer web-based financial advice or guidance service for the masses.
The advice gap is about more than just finding an adviser, it is also about the affordability of adviceI have no problems with this and it will be right for some people but it will not work for everyone. For example, 7m adults (latest Office for National Statistics figures) are not even on the internet so it is a non-starter for them.
One approach I do like has been pioneered in the US, where there are many more fee-based financial planners than the UK and more affordable advice models are emerging. There are more than 60,000 fee-based planners in the US compared to just more than 5000 in the UK so the availability of fee-based advisers in the US is much higher even taking into account the population difference. Higher adviser ‘density’ has sparked more competition and innovation.
Some companies have pioneered a lower-cost financial planning model, offering an hourly-charged service that provides access to financial planning on a more affordable, perhaps one-off, basis.
One of the companies doing this is the Garrett Financial Planning network in the US, founded by Sheryl Garrett and well worth a look. I spoke on the phone to Ms Garret recently and she explained that her planners were reaching a new, previously ‘unadvised’ market of people who could not afford full-service, long-term financial planning but perhaps wanted reassurance that their pension was on track or help with school fees planning.
She told the Los Angeles Times last year: “The majority of Americans don’t need, nor should they pay for, full-time advice. It just doesn’t make any sense financially.”
Ms Garret has a point and it applies here too. If the UK advice gap is to be bridged, innovative and affordable advice models will form part of the solution.
Kevin O’Donnell is a financial writer and journalist
