IFAs cannot plug the advice gap alone

Less than one in 10 adults (8 per cent) took regulated financial advice in the preceding 12 months, according to the Financial Conduct Authority's Financial Lives 2020 survey. 

But it is not just advice that consumers are missing out on. More than two-thirds (68 per cent) of adults did not receive support in the same timeframe, despite the broad definition that includes information and guidance, as well as regulated financial advice.

Is the onus on advisers to address these deficiencies?

In its new report, The Investing and Saving Alliance says it is “simply not realistic” to expect the financial advice community alone to fulfil the support needs of consumers or plug the advice gap. 

Consumer support also needs to come from product providers, banks and building societies, which often have existing consumer relationships across the country, Tisa adds. Savings and investments support also needs to be delivered in an “engaging and more personalised manner”.

What we want to see from financial institutions is more educating and signposting, not just a focus on selling.Neil Moles, Progeny

Research commissioned by Tisa found 73 per cent would be interested in a personalisation service where their provider gives them access to a tool that makes it quick and easy for them to input data to identify and select savings products that are relevant to them. Almost two-thirds (63 per cent) said they would be interested in the same personalisation service for investment products.

But Tisa says there is a “large gap” between the personalised support that consumers would like, and the type of support that the industry can provide.

“Advice regulations prevent firms from providing personalised support by defining such activities as advice as opposed to guidance,” says Prakash Chandramohan, strategic policy director at Tisa.

“By its very nature, personalised support requires product providers, banks and building societies to take consideration of the circumstances of a person. But if they do so, they risk the support service triggering and meeting the definition of a personal recommendation.”

Consumers are instead turning to sources such as their bank’s website, comparison sites, online tools and calculators.

Tisa’s findings reveal consumers are equally likely to research investments by reviewing social media websites as they are to getting support from a financial services provider/bank.

The body warns that many customers are using less formal and often unregulated sources for support in making financial decisions, increasing the risk of them being subject to misinformation and scams.

Indeed, separate research from Skipton Building Society found more than a third (35 per cent) of adults trust financial advice they see on the social media platforms TikTok, Instagram and Facebook.

In a behavioural science experiment, several fictional social media personalities were created to gauge how likely respondents would be to follow that personality’s advice.

Seven in 10 (71 per cent) trusted the fake female parenting and money management influencer when presented in isolation, with many highlighting her role as a mother who appeared to be living a "normal life".

Hybrid models needed

Helen McGinty, head of financial advice delivery at Skipton, takes a similar view to Tisa, saying the building society believes a blend of digital and human personalised support is required to address the advice gap.

“Enabling customers to make informed choices by providing appropriate financial education and guidance is key,” McGinty adds.

Boring Money is an example of a website that aims to help consumers choose between traditional and digital advice, DIY investing and free information.

Anna Stoughton, relationship manager at Boring Money, says consumers need a triage service that helps them determine where to go, understand the options available and how each service differs.

“That needs to cover everything, from free, generic information right through to a fully personalised financial plan,” Stoughton says. “We’ve already seen thousands of consumers use our online quiz to help them research the options available.”

As Tisa highlights the impracticality of the advice industry tackling the advice gap alone, Neil Moles, chief executive of Progeny, says all financial services stakeholders “certainly” have a responsibility to address the gap, by educating people about finance and increasing understanding of the sector’s services and products.

“What we want to see from financial institutions is more educating and signposting, not just a focus on selling,” Moles adds.

Nutmeg, for example, has offered free guidance from its team of wealth consultants since last year as a middle ground between regulated financial advice and its client services team. The latter offers a basic level of information on issues such as setting up an account and customer queries on the risk questionnaire during onboarding.

“What we became really aware of is this bit in the middle,” says Kat Mann, savings and investment specialist at Nutmeg. “You might phone in and be talking loosely about what your situation is.

“That area of guidance was really something where we thought, 'there’s a market here for people', for either existing customers or customers who are considering investing with Nutmeg.”

Mann adds that customers who want some guidance, but do not require "full fat" financial advice, may then return for advice when that need is triggered by an event such as an inheritance or windfall.

Jamie Jenkins, director of policy and external affairs at Royal London, agrees that “warming” people to the benefits of advice with early guidance may be “much more productive” than suggesting that everyone needs advice at every point.

This echoes Tisa’s stance. The body cites a finding by the Financial Conduct Authority of 37.8m adults who are not using any formal support on their finances, but says the solution is not tens of millions of extra people taking regulated financial advice.

Jenkins notes that if everyone who would benefit from advice sought an adviser, there would not be the capacity to service them all.

Boring Money’s Stoughton agrees: “Even if all the UK’s advisers massively increased their workload, they still couldn’t realistically get to all the people that might benefit from help managing their money, and in many cases the case size will be too small to service profitably through face-to-face advice. Digital advice and hybrid models will definitely need to be part of the answer.”

Adam Smith, an independent financial adviser and operations director at Financial Advice Centre, attributes the capacity issue to an increase in regulatory costs and client redress “for the mistakes of companies no longer in operation”.

He says: “[It] has contributed to a shrinking pool of companies left to pay the costs and give advice.

“While we feel a social responsibility to ensure everyone should have access to top-quality financial advice, it is foolish to think this gap should be plugged by businesses like IFAs alone.”

Chloe Cheung is a features writer at FTAdviser