Is the advice gap growing?

With the cost-of-living crisis hitting people hard, it’s no wonder the advice gap still seems to be growing. The fact that many advisers still charge a percentage of assets under management means this is unlikely to change, as it’s just not profitable to help those who don’t already have substantial assets. Yet those people that need financial help and education the most are often the least able to afford it. At New World, we believe that everyone can benefit from some form of financial advice or guidance, and that the earlier you start the better. Over the past six months, we’ve introduced a free financial health check and we’ve been working closely with employers to provide financial wellbeing presentations to their staff. We also launched our subscription financial planning service earlier this year, which means individuals can benefit from full financial planning from just £50 per month.

In short, no, I don't think the advice gap is growing. Our business is relatively new, and that means we have very recently looked at our proposition and fee structure. We decided to charge fixed fees for several reasons. We worked out that below an investment amount of £250,000, we would not be able to add enough value for what we charge. The reason I don't believe the advice gap is growing is that due to market returns over the past decade, more people have over £250,000 of invested wealth and so the number of people we can help has grown. Recently, the FCA has suggested that individuals with £10,000 should have access to advice, yet are only prepared to pay £100 for it. Our business would operate at a loss if we took those clients on. Or worse, we would have to charge wealthier clients more to subsidise it. This was one reason we ditched percentage-based charging. FCA research on the effectiveness of RDR also suggested that individuals with similar savings balances are least trusting of advisers and more likely to use DIY platforms. The FCA's current thinking isn't correct. These savers need access to financial education and easy-to-understand information on products. That is incumbent on DIY platforms and product providers. The advice profession can't support a levelling up agenda driven by the FCA and provide a required level of service to clients who are paying the required level of fees.

The simple fact is that the cost of giving personalised advice is high. There is no escaping that. So how do we get that down? There is an inherent tension there that is very hard to solve. The problem is the more technology-based and low-touch the advice, the less personalised it tends to become. For some people that will be fine and there is probably a business there for anyone who can make it work, but for other people it's not fine as they need specific help. Think of a parallel with the legal system. Are there mass-market law firms out there trying to bridge the advice gap in the legal system? Not that I'm aware of, because, like financial planning, each person needs specific advice. And even if there was, would you really use them? I can see why we're trying to solve this, but let's be honest about the fundamental structure of the marketplace, which makes it an issue so difficult to resolve.

The advice gap is growing and we see evidence of this regularly when we do financial education sessions for employees. We’re investing heavily in solutions for the less financially aware for 2023 and we believe these are best delivered through the workplace.

There is still a huge advice gap. The problem is that there is so much involved in providing advice and so much required for compliance, that there comes a point where you have to have a minimum fee for clients if you want to run a sustainable business. We are always innovating to improve our processes and find ways to deliver a great service without charging more than we need to.

As a firm, we believe that the advice gap is still growing. As an industry, we aren't very good at showcasing what we do and the benefits of working with us. As a result, people often don't see the value we add. Also, many people believe they can't afford to work with us and unless they know someone who has worked with an adviser who they are actively recommending, they don't always know what we do. What we are doing about it: 3 educational blogs a month with a range of topics Publish the budget summary online and in local social media groups providing financial education sessions in our local community, army days and health fairs Separating financial planning from financial advice and allowing clients to choose whether to arrange the financial product or not Talking to our mortgage clients about their workplace pensions and plans for the future Showcase the benefits of cashflow modelling A fully online process or a face to face one depending on preference of the clients

Over the past year, there have been studies that have highlighted the widening of the advice gap in financial planning where, for instance, one in two adults (45%) doesn’t feel confident managing their money day to day; only 20% of 50-64 year olds have spoken with a financial adviser when accessing their pension. Royal London estimates there are 39 million adults in the UK that fall into the advice gap, which represents an£185bn adviser opportunity. Where only 26% of the country seek professional financial advice, this leaves almost three quarters of the population missing out on the value and security it can provide. The FCA have set out expectations around standards of advice to ensure clients needs and attitude to risk are fully assessed, however this means there is much work needed to provide this level of detail where the cost of that advice would be prohibitive for low value investors. Therefore, with the advent of more people happy to receive advice remotely via telephone or video calls plus robo advice through IT planning tools there is a substantial opportunity for those financial planning firms that embrace different ways clients can access advice. At Premier Jobs UK, we have a growing number of clients seeking recruitment of remote telephone-based advisers to provide financial planning to retail investors. We are hopeful that this are will see much growth in 2023.

The term 'advice gap' is quite misleading because, in all honesty, most people don't need regulated financial advice. The real gap is a lack of financial education and sound financial behaviour. There are tentative signs that personal finance learning in schools is improving, but most people in their 30s and above lack confidence in the basics of money. Even when the basics are understood, positive money behaviours can be hard to apply. We all know that we should spend less than we earn, but that's similar to us knowing that we should consume less calories than we burn. Many find it hard to follow that 'advice'. My small part in helping to address this 'gap' is to focus on education and behaviour as a coach, with no attachment to product sales or investment management. By removing the costs of regulation and product distribution, I can empower individuals and couples to take control of their money at lower cost. It's hugely valuable work, but it's not 'advice'.