Financial services should be affordable for all

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Financial services should be affordable for all

Advisers will no doubt have been unsurprised to see the recent report from think tank ILC-UK and Royal London, which calculated that advised clients were better off to the tune of £41,000 in financial assets and pension wealth over those who did not take advice. Proof, if it were needed, of the value of advice.

But, as the Financial Advice Market Review (FAMR) highlights, only a small percentage of the UK population accesses, or is willing to pay for, financial advice. Figures in the FCA’s Baseline Report, published in June, show that 6 per cent of the adult population (3.2m people) received advice in the previous 12 months. A further 12 per cent (6.5m people) might be prepared to pay for advice. However, the report says that 5m of these would not pay more than £500.

That means that the bulk of the UK population – 82 per cent of adults or 43m people – either cannot afford advice or do not have the levels of financial assets that make them feel it is worthwhile. FAMR is trying to address this and we should all support the review’s objectives and the desire to help all segments of society to better manage their money.

When FAMR launched in August 2015 it was set against a backdrop of concerns that the market for financial advice was not working well for consumers. Since then the introduction of pension freedoms has served to heighten fears that consumers are making complex and far reaching financial decisions without taking advice or guidance.

The Tax Incentivised Savings Association's (Tisa’s) policy work to identify solutions that will help achieve the FAMR objectives is at an advanced stage. It is clear that a financial guidance service to support the needs of the mass market and help people make informed financial decisions should be at the heart of the solution if we are to close the advice gap and tackle the barriers to consumers accessing advice and guidance.

Such a service must be robust enough and it is hugely encouraging to see the moves to create a single financial guidance body combining the work of the Money Advice Service (MAS), The Pension Advisory Service (TPAS) and Pension Wise. But, to be fully effective in meeting mass-market needs, we need to harness the efforts of the new body with the resources that financial services firms provide. This calls for close co-operation between the new body and the industry.

We should not underestimate the scale of the challenge this brings – it is going to need full support from the FCA, department for work and pensions (DWP), HM Treasury and financial services – but if the end result is a guidance and advice resource that helps the population to be financially resilient, then it will have been worth the effort.

Digitalisation will be a key enabler, letting consumers access many of the sources of guidance and creating a platform for the introduction of innovative services and products. Tisa is working to develop a digital identity for consumers of financial services and I believe this will provide significant support. I envisage that it will facilitate digital engagement with providers of guidance services and enable the development of value added online tools to help savers manage their financial data more effectively. This would be transformative for consumers and the industry.

FAMR, combined with digital innovation, presents us with an opportunity to encourage a healthy demand side for financial advice and address the advice gap for those people who do not have substantial wealth. It will require bold reform from the government and the regulator, with the continued support from the industry. However, if we can achieve a sea change in the levels of saving, right across society, to create financial resilience among consumers, then the benefits will be felt by us all.

David Dalton-Brown is director general at Tisa