“You call that an advice gap? THAT’S an advice gap!”

One of my favourite childhood movies was Crocodile Dundee.

You all know the premise, I’m sure. An American reporter goes to the Australian outback to meet an eccentric crocodile poacher (Mick Dundee) and invites him to New York City. Adventures ahoy!

The movie contained some excellent scenes, including the attempted mugging in NYC which featured the lines which inspired the title of this article. Approached by a teenage mugger with a switchblade, Mick calmly produces a large bowie knife and explains to his female companion, “That’s not a knife. THAT’s a knife.”

This also resulted in a brilliant parody in The Simpsons, with the classic line, “All right, you win. I can see you’ve played Knifey Spoony before!” But anyway, I digress.

There’s been a lot of talk in the trade press and from the regulator recently about the ‘advice gap’. According to some, the withdrawal of a mass market advice service since RDR was introduced has resulted in a widening of the advice gap.

Mass market advice is shrinking, and will continue to shrink, for a number of reasons. The banks seemingly no longer want to play in this space. Well, they want to play in this space as it used to be quite profitable for them to flog investment products to their banking customers, but regular fines and higher professional standards are clearly making it seem less attractive than it once was.

In the IFA space, mass market clients were never really profitable. Plenty of IFAs dealt with them, because the ability to cross-subsidise the cost of a ‘free’ service to lower value clients with eye-watering commissions from higher value clients made this somehow alright. The RDR and adviser charging is quickly bringing this to an end, as well as the growing realisation among clients that a) nothing in life is free, and b) paying a percentage of your assets to buy a product probably doesn’t represent very good value.

So, if we accept that there is a growing advice gap as a result of the withdrawal of mass market services, is this is problem? I want to argue it is not.

That is because it is wrong to call this phenomenon an advice gap. It’s really a sales gap.

The banks were not advising their customers, but instead selling them (often unsuitable) products. IFAs working in this space were delivering some advice to mass market clients, but the service was primarily about product sales, with free ‘advice’ used as a way to sell a product which generated commission.

Closing a sales gap requires different actions to closing an advice gap. There is no advice gap because every IFA I know has the capacity to deal with more advised clients; at least those clients who need, want and would value professional advice. Mass market clients do not, in the main, fall into this category; particularly mass market clients in the wealth accumulation stage of their lives.

The sales gap can be closed with a combination of information services – such as the badly named Money Advice Service – and online services for execution of products. We don’t need highly qualified, expensive and sometimes non-compliant advisers to sell products.

But, as I alluded to with the title of this article, there is an advice gap coming – and it’s going to hit us like a juggernaut on steroids.

Over the next twenty years or so, a lot of people are going to reach retirement age. The post-war ‘baby boomer’ generation is starting to retire and the need for advice will be massive, like nothing you or I have ever experienced before.

This is the generation who hold most of the wealth in this country, around 80% of the nation’s £6.7trn of wealth according to one study. They were described earlier this year by the Bishop of London as the “fortunate generation”; experiencing dramatic improvements in living standards and receiving more than their fair share of taxpayer money.

According to the ONS, there will be 16.1m in the UK of pensionable age by 2037, compared to 12.3m in 2012. The baby boomers are coming.

And these people are, generally, in need of professional advice. They need help with their retirement income, care fees planning, inheritance tax and managing their investment assets.They are getting divorced in rapidly growing numbers. They haven’t typically needed to plan ahead or consider in detail their Financial Plans.

I’m not particularly hopeful about the prospects for baby boomer wealth cascading down to future generations; it will either be spent during retirement or spent by the eventual beneficiary on clearing massive mortgage debt. But at least for the next twenty years or so, IFAs across the country will be in a position to work with more clients than they could shake a stick at who actually need, want and value their services.

This is why I’ve started making a feature-length documentary about Financial Planning and the Baby Boomer generation. Boom! is on track to be released next autumn, hopefully with a first screening at the IFP or PFS Conference.

It’s exciting to consider the possibilities for an advice business over the coming years. Get your house in order today; disengage with inappropriate clients, up-skill to work with baby boomers and hone your proposition. The real advice gap is arriving very soon, and we need your help to fill it.

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24 thoughts on ““You call that an advice gap? THAT’S an advice gap!”

  • I agree with much of this, Martin. Two points to add, if I may, which I think are in agreement with your article.

    There is a danger we are overusing the phrase ‘advice gap’ to cover people who need to invest but need little or no ‘advice’ in the formal sense of the word. Or at least, the costs involved make it unrealistic. Broadly speaking, we have an investment gap, and for the people you talk about above, we also have an advice gap. There are also a lot of people who have neither the means nor the opportunity (they may near retirement) to accumulate any money and I worry that using the ‘gap’ becomes a terrible euphemism for many.

    That said, the opportunity and need is there for people retiring with reasonable wealth, and I do think advice is not only necessary but welcomed at this stage in life. My question is with so many advisory business focussed on wealth accumulation (bps charging model, ongoing reviews etc) does this require a different type of firm, offering a much more focussed type of advice to service lots of this type of client?

    Reply
    • Thanks, Phil.

      I agree we have lots of gaps, all with different features, requirements and potential solutions.

      A firm set-up to provide advice to wealth accumulators does need to look very different from one dealing with wealth decumulators. Perhaps there is an important role for restricted advice or simplified advice for the former?

      Wealth accumulation certainly lends itself better to non-advised services delivered online.

      Reply
  • Hi Martin,

    I think I disagree with almost everything you say in your piece about the market for financial advice.

    In my opinion there is no advice or sales gap or indeed any lack of demand for financial advice from any section of the community.

    All people still either live longer than they thought or die sooner than expected and the majority would like some help in planning for these outcomes.

    The real gap is in the skill levels of the industry and the almost complete absence of business or marketing acumen.

    The adviser community continues to try and replicate the remuneration levels that providers paid it for product distribution and to categorise its potential clients by their willingness to meet these historical remuneration levels.

    I cannot think of another market which expects its potential clients to meet its needs rather than for it to meet the needs of its clients.

    There is an enormous market for financial advice but it will not be met using traditional opaque mumbo jumbo or trying to present a pompous self important image in the hope that people will be deluded into thinking you really do have a crystal ball into the future.

    We need to find out what the public wants from financial advice and how much they will pay for it and then devise ways of delivering it in a profitable manner.

    This can and will be done by someone very soon, be it Google or Amazon and it will not be at exorbitant hourly rates or aimed at a rather small number of so called HNW ‘s.

    Our own business has managed to deliver advice to a complete cross section of all socio economic groups for many years and has done so in an extremely profitable manner with very low charges.

    Our market is always changing but if we embrace this change we can prosper whilst making a very useful contribution to our society.

    Reply
    • Thanks, Phil.

      You make some good points here and I agree that many businesses need to redesign their models to meet the needs of clients.

      I think we need to find the point where what people will pay for advice meets the cost of delivering advice (plus profit), which determines to some extent the market with which we all deal.

      For this reason I can’t agree with your view that most IFA businesses can deal with all socio economic groups profitably; perhaps this is possible when a business offers a restricted advice service (with a single platform, centralised investment proposition, etc), but probably not with tailored independent financial advice.

      I’m all in favour of embracing change. If this results in a business which makes a useful contribution to society, great. But this can’t be the primary objective of a commercial business, surely?

      Reply
  • Hi Martin,

    Great article and I love the 80’s movie reference! Will have to try to get a reference to either the Goonies, Cannonball run or Ghostbusters into a future article (or maybe all three!).

    To be absolutely frank….I’m not sure what “The Advice Gap” is.

    Sometimes it’s explained as the gap between “need advice” and “afford advice”.

    Sometime it’s explained as the gap between “can afford advice” and “doesn’t receive advice (for whatever reason)”

    and

    Sometimes it’s something else….

    I agree that the baby boomer generation will be able to afford advice and there needs to be both the capacity within the profession to service that need. The numbers clearly show that gap exists…

    However I’ve been thinking a lot about the individuals who are pre baby boomer and on the whole are either attempting to or want to build their wealth and what business model would work to support that.

    The “Mass Market” hasn’t been served well with face to face advice in the past….but with technology making everything more systemised could there be a model which both incentivises people to save, provides them with a simple straightforward service….and most importantly gets individuals into the habit of saving.

    I think I’ve found the subject of my next adviser lounge article (complete with 80’s references).

    Reply
    • Thanks, Chris.

      I’m looking forward to a plethora of 80’s movies inspired articles in the very near future 🙂

      You’re quite right that the ‘advice gap’ has not yet been properly defined. How you can tackle a perceived problem when nobody agrees on what that problem is, is beyond me.

      Tech will definitely be the answer to serving the generation which comes after the baby boomers.

      Reply
  • Martin I am glad you have wrote this piece on AL as opposed to MM or NMA as I glad I won’t have to cringe at the abuse you will take from the anon brigade
    .
    That said you are your own worst enemy!

    Why do you persist being down on the very profession that you work/advise in. The article is well written and some of it makes sense, but is spoilt by the nonsense that you spout about “IFA’s”.
    I would have enjoyed the article more without any reference to the ‘bad’ IFAs and it was just about your opinion on a developing market.

    Stop slagging off the little minority that have tarnished our profession over the years, just forget them and focus your comments on the majority who haven’t.

    The CII/PFS have a very good Consumer confidence program on the go at the moment, embrace the principles of that please, because until you stop being a media IFA, (which isn’t going to happen soon)people/consumers etc will listen to you and read your comments, as you are influential and have a high ‘Klout’ rating ha ha

    All business’s develop and change and ours and yours in no different, it wasn’t to long ago you were charging % fees!

    I agree with a lot of what you have said and I myself am up skilling and improving my knowledge in the LTC market in lieu of the increase in advice demand.

    I agree with Phil’s comments, the advice gap has not altered; the demand for advice is as great now as ever! If anything, we all will be part guilty of increasing the advice gap, by not advising the so called ‘not wealthy’ clients. My wealthiest clients are the ones who have worked and saved hard over the years, with some input from my wonderful self!

    Reply
    • Thanks, Wayne.

      I value your opinion, but disagree entirely with your interpretation of my article.

      There is absolutely nothing wrong with highlighting historic examples of poor practice; it’s a very useful way to illustrate and encourage best practice. This is an industry facing website after all, so there is no suggestion of damaging consumer confidence.

      I signed up to the PFS Consumer Confidence Campaign a couple of weeks ago and absolutely agree with its principles. In my opinion, this article is balanced and constructive, and ultimately positive about the future.

      What the PFS Campaign is not calling for, I’m sure, is a rose-tinted ‘everything is wonderful’ approach to life and commentary.

      Reply
  • I like the film idea Martin. Something a bit different and imaginative.

    And it’s that which we need to be ~ we, being our profession / the industry ~ to get more people to act and do something whether that be on an advised or non-advised basis.

    Reply
    • Thanks, Paul. I agree.

      Reply
  • I’ve always been puzzled by advisers worrying about the advice gap.

    I like the idea that there is more demand for advice than supply and would like to encourgage this to continue for the rest of my working life. In O level economics, they taught me that if demand exceeds supply, prices rose, with profits for the suppliers increasing as a result. If there were barriers to entry in an industry, these higher prices were sustainable for longer.

    Shouldnt those of us in the business be celebrating the advice gap and the high barriers to entry? Lets have a party next time the government makes pensions even more complicated!

    Reply
  • Martin, I don’t understand why a busness advising accumulator clients can’t advise decumulators. Surely, this is just a different proposition that includes some different services. In terms of niches, I can understand why some firms would choose to adopt one or the other, but it doesn’t follow that they can’t.

    I agree with many of your other points around the advice gap though.

    Reply
  • I agree with much of this, Martin. Two points to add, if I may, which I think are in agreement with your article.

    There is a danger we are overusing the phrase ‘advice gap’ to cover people who need to invest but need little or no ‘advice’ in the formal sense of the word. Or at least, the costs involved make it unrealistic. Broadly speaking, we have an investment gap, and for the people you talk about above, we also have an advice gap. There are also a lot of people who have neither the means nor the opportunity (they may near retirement) to accumulate any money and I worry that using the ‘gap’ becomes a terrible euphemism for many.

    That said, the opportunity and need is there for people retiring with reasonable wealth, and I do think advice is not only necessary but welcomed at this stage in life. My question is with so many advisory business focussed on wealth accumulation (bps charging model, ongoing reviews etc) does this require a different type of firm, offering a much more focussed type of advice to service lots of this type of client?

    Reply
    • Thanks, Phil.

      I agree we have lots of gaps, all with different features, requirements and potential solutions.

      A firm set-up to provide advice to wealth accumulators does need to look very different from one dealing with wealth decumulators. Perhaps there is an important role for restricted advice or simplified advice for the former?

      Wealth accumulation certainly lends itself better to non-advised services delivered online.

      Reply
  • I like the film idea Martin. Something a bit different and imaginative.

    And it’s that which we need to be ~ we, being our profession / the industry ~ to get more people to act and do something whether that be on an advised or non-advised basis.

    Reply
    • Thanks, Paul. I agree.

      Reply
  • Hi Martin,

    I think I disagree with almost everything you say in your piece about the market for financial advice.

    In my opinion there is no advice or sales gap or indeed any lack of demand for financial advice from any section of the community.

    All people still either live longer than they thought or die sooner than expected and the majority would like some help in planning for these outcomes.

    The real gap is in the skill levels of the industry and the almost complete absence of business or marketing acumen.

    The adviser community continues to try and replicate the remuneration levels that providers paid it for product distribution and to categorise its potential clients by their willingness to meet these historical remuneration levels.

    I cannot think of another market which expects its potential clients to meet its needs rather than for it to meet the needs of its clients.

    There is an enormous market for financial advice but it will not be met using traditional opaque mumbo jumbo or trying to present a pompous self important image in the hope that people will be deluded into thinking you really do have a crystal ball into the future.

    We need to find out what the public wants from financial advice and how much they will pay for it and then devise ways of delivering it in a profitable manner.

    This can and will be done by someone very soon, be it Google or Amazon and it will not be at exorbitant hourly rates or aimed at a rather small number of so called HNW ‘s.

    Our own business has managed to deliver advice to a complete cross section of all socio economic groups for many years and has done so in an extremely profitable manner with very low charges.

    Our market is always changing but if we embrace this change we can prosper whilst making a very useful contribution to our society.

    Reply
    • Thanks, Phil.

      You make some good points here and I agree that many businesses need to redesign their models to meet the needs of clients.

      I think we need to find the point where what people will pay for advice meets the cost of delivering advice (plus profit), which determines to some extent the market with which we all deal.

      For this reason I can’t agree with your view that most IFA businesses can deal with all socio economic groups profitably; perhaps this is possible when a business offers a restricted advice service (with a single platform, centralised investment proposition, etc), but probably not with tailored independent financial advice.

      I’m all in favour of embracing change. If this results in a business which makes a useful contribution to society, great. But this can’t be the primary objective of a commercial business, surely?

      Reply
  • Martin I am glad you have wrote this piece on AL as opposed to MM or NMA as I glad I won’t have to cringe at the abuse you will take from the anon brigade
    .
    That said you are your own worst enemy!

    Why do you persist being down on the very profession that you work/advise in. The article is well written and some of it makes sense, but is spoilt by the nonsense that you spout about “IFA’s”.
    I would have enjoyed the article more without any reference to the ‘bad’ IFAs and it was just about your opinion on a developing market.

    Stop slagging off the little minority that have tarnished our profession over the years, just forget them and focus your comments on the majority who haven’t.

    The CII/PFS have a very good Consumer confidence program on the go at the moment, embrace the principles of that please, because until you stop being a media IFA, (which isn’t going to happen soon)people/consumers etc will listen to you and read your comments, as you are influential and have a high ‘Klout’ rating ha ha

    All business’s develop and change and ours and yours in no different, it wasn’t to long ago you were charging % fees!

    I agree with a lot of what you have said and I myself am up skilling and improving my knowledge in the LTC market in lieu of the increase in advice demand.

    I agree with Phil’s comments, the advice gap has not altered; the demand for advice is as great now as ever! If anything, we all will be part guilty of increasing the advice gap, by not advising the so called ‘not wealthy’ clients. My wealthiest clients are the ones who have worked and saved hard over the years, with some input from my wonderful self!

    Reply
    • Thanks, Wayne.

      I value your opinion, but disagree entirely with your interpretation of my article.

      There is absolutely nothing wrong with highlighting historic examples of poor practice; it’s a very useful way to illustrate and encourage best practice. This is an industry facing website after all, so there is no suggestion of damaging consumer confidence.

      I signed up to the PFS Consumer Confidence Campaign a couple of weeks ago and absolutely agree with its principles. In my opinion, this article is balanced and constructive, and ultimately positive about the future.

      What the PFS Campaign is not calling for, I’m sure, is a rose-tinted ‘everything is wonderful’ approach to life and commentary.

      Reply
  • Martin, I don’t understand why a busness advising accumulator clients can’t advise decumulators. Surely, this is just a different proposition that includes some different services. In terms of niches, I can understand why some firms would choose to adopt one or the other, but it doesn’t follow that they can’t.

    I agree with many of your other points around the advice gap though.

    Reply
  • Hi Martin,

    Great article and I love the 80’s movie reference! Will have to try to get a reference to either the Goonies, Cannonball run or Ghostbusters into a future article (or maybe all three!).

    To be absolutely frank….I’m not sure what “The Advice Gap” is.

    Sometimes it’s explained as the gap between “need advice” and “afford advice”.

    Sometime it’s explained as the gap between “can afford advice” and “doesn’t receive advice (for whatever reason)”

    and

    Sometimes it’s something else….

    I agree that the baby boomer generation will be able to afford advice and there needs to be both the capacity within the profession to service that need. The numbers clearly show that gap exists…

    However I’ve been thinking a lot about the individuals who are pre baby boomer and on the whole are either attempting to or want to build their wealth and what business model would work to support that.

    The “Mass Market” hasn’t been served well with face to face advice in the past….but with technology making everything more systemised could there be a model which both incentivises people to save, provides them with a simple straightforward service….and most importantly gets individuals into the habit of saving.

    I think I’ve found the subject of my next adviser lounge article (complete with 80’s references).

    Reply
    • Thanks, Chris.

      I’m looking forward to a plethora of 80’s movies inspired articles in the very near future 🙂

      You’re quite right that the ‘advice gap’ has not yet been properly defined. How you can tackle a perceived problem when nobody agrees on what that problem is, is beyond me.

      Tech will definitely be the answer to serving the generation which comes after the baby boomers.

      Reply
  • I’ve always been puzzled by advisers worrying about the advice gap.

    I like the idea that there is more demand for advice than supply and would like to encourgage this to continue for the rest of my working life. In O level economics, they taught me that if demand exceeds supply, prices rose, with profits for the suppliers increasing as a result. If there were barriers to entry in an industry, these higher prices were sustainable for longer.

    Shouldnt those of us in the business be celebrating the advice gap and the high barriers to entry? Lets have a party next time the government makes pensions even more complicated!

    Reply

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