The Financial Conduct Authority (FCA) has said in its Advice Guidance Boundary Review (AGBR) that financial service providers need to offer ‘targeted support’ to consumers to help with investing or retirement savings access. However, a new study from financial consultancy, the lang cat, reveals that this type of support would only be valuable to one in 10 consumers (13 per cent) as it publishes findings on the financial advice gap in the UK.
Doing fieldwork with 210 financial advisors and utilising research from YouGov of over 2,000 British adults, the lang cat uncovers that only nine per cent of people are currently benefitting from professional financial advice.
Consumers are not the only ones dissatisfied with the FCA’s recommended changes. One in four advisers has said they don’t believe the targeted support changes will have a positive impact. In fact, they say that this approach may confuse consumers and make their financial situations worse. Nonetheless, half of advice firms say they will be offering these services once the regulation is laid out.
Also, under consideration as part of the AGBR, the study shows that there is some interest from consumers in simplified or pay-as-you-go advice models. Around two-thirds (57 per cent) of respondents reported being either fairly or very interested in advice for one-off type events such as arranging a will or mortgage, rather than ongoing advice with a regular yearly fee.
How to improve
Commenting on the findings, Mike Barrett, consulting director at the lang cat, says: “Just nine per cent of the population has benefited from paid for advice over the past two years and as an industry, we all aspire for that figure to grow. Despite the headline, there is a lot to be positive about. The fact that an overwhelming 91 per cent of those who took advice found it helpful shows levels of customer satisfaction that any other profession would dream of.
“Two areas of concern remain – firstly, the alarming lack of awareness among the majority of the population as to the benefits of financial advice. And secondly, how the profession is increasingly focused on a narrow segment of the population – wealthy individuals over 50 who are edging towards retirement. This isn’t a criticism of the advice profession – the need to service this group is entirely logical and sensible.
“However, the advice gap is most pressing for those who fall outside of this segment, and we believe there is value in understanding the scale of the problem. Only then can we figure out what interventions if any are needed so that we can start to tackle the advice gap once and for all.”
Impact of Consumer Duty
Looking at the impact of the now two-year-old Consumer Duty on advisers’ businesses, two-thirds said regulation is making it harder to serve less wealthy clients. Half report stopping services with ‘accidental advice gap’ clients making up an average of 11 per cent of their customer base and rising to 17 per cent for smaller firms.
Turning to solutions, advisers clearly see opportunities through technology for supporting clients with simple needs. When asked about the potential to offer advice services through digital channels, over 55 per cent said these would expand their customer base, with 30 per cent able to service less wealthy clients.
This year’s report also features three case study firms whose work stood out for doing their bit to address the advice gap. These include:
- Jo Wall, founder of Joyful Wealth
- Susan Pringle, managing director, Henderson Loggie
- Nick Arbin, director at Embrace Financial Consulting Ltd.
Industry response
Responding to the report’s findings, Jamie Jenkins, director of policy at Royal London, shared optimism about people’s response to financial advice: “While this report may illustrate how few people take advice today, there are green shoots as we see the value people place on advice when they access it. It’s hard to imagine a future that doesn’t involve an increased need for financial advice, and the inexorable rise of technology in the form of AI presents new opportunities to deliver advice in different ways.
“The insight from this report may well be the cornerstone of policymaking around the advice gap in the years to come.”
Not there yet
Bethan Lloyd, advice proposition manager at Quilter, the wealth management firm, agreed with the response in the report that targeted support was not enough to change financial advice usage: “The findings show that, despite the industry’s best efforts, we still have a considerable way to go in bridging the advice gap. While the concept of targeted support has real potential, more work is needed to demonstrate its value to consumers and build the trust required to make it effective.
“Crucially, we must ensure that any regulatory change designed to expand access does not inadvertently undermine the importance of holistic financial advice for those who would benefit.
“As Consumer Duty continues to reshape the market, we must strive for solutions that simplify – not complicate – consumer journeys. Journeys that recognise people value the insight of others when making complex decisions and that reflect the broad spectrum of financial needs in society. Now is the time for the industry and regulators to come together to build a tiered, sustainable framework of support. This isn’t just about those with complex wealth, but about the millions navigating everyday financial decisions who deserve accessible, meaningful help.
“Encouragingly, the findings suggest that digital models which ‘incubate’ clients with simpler needs – while preserving the potential for adviser-led relationships to evolve over time – are already of interest to two-thirds of firms surveyed, and even more so among the smallest and largest providers.”
The post the lang cat Reveals FCA Needs to do More Than Targeted Support to Close Advice Gap appeared first on The Fintech Times.
