My Solution To The Advice Gap

Two events recently have helped me form a suggestion for how we can solve the problem of the majority of people in the country being unable – and often uninterested – in taking financial advice. The so-called ‘advice gap’.

The first was a round table discussion with HMRC and the FCA. I was impressed that this event happened at all, there was a clear interest in hearing the ideas of the adviser community. There were some really interesting ideas put across, along a few inevitable self serving suggestions that were less helpful.

If we’re going to solve this problem, we need to think a little wider than our own business models.

The second was a conversation with Damian Davies of The Timebank, a man who clearly cares. We knocked a few ideas around, so I need to credit what follows as being in no small part down to him.

Let’s look at some resources that are available. Firstly, there is the £120m currently being spent by the Government on giving financial advice to the public (MAS, Pension Wise, Pensions Advisory Service).

Secondly there are the 28,000 authorised financial advisers in the UK.

If we assume that one adviser can only realistically deal with around 100 clients (an arguable point, but go with it), that means that the adviser community can reach a maximum of 2.8m clients. Many of these will be couples, so let’s say 5m people take financial advice. That leaves a lot of people we simply cannot reach, even if we wanted to and they could afford to pay us.

Plugging the advice gap cannot come from the adviser community. Or can it….

Most advisers do some sort of pro bono work. It might be seeing someone for a free initial consultation that you know will not sign up as a client, it might be helping at the local Citizen’s Advice Bureau. My proposal is therefore to build on the knowledge and goodwill of the adviser community.

With these points in mind, here is my suggestion:

  • The Government set up an organisation to facilitate free financial education sessions (perhaps use an existing organisation such as the Business Links or Chamber of Commerce). In the workplace, in sixth form colleges, universities, local village halls, anywhere and everywhere
  • These sessions are delivered by registered individuals. They give their time for free
  • The sessions count towards CPD, and every adviser is expected to a certain amount each year – perhaps 1 hour per month.
  • That’s 336,000 1 hour sessions per annum. 20 people attending each session, that’s 6.7m reached. Each year.
  • The adviser is allowed to mention their services for those attendees who might be in a position to engage a financial adviser

I believe this would create a dialogue between the professional advice community and the general public which, after a few years, would considerably improve the trust of advisers which is quoted as being such a major factor in preventing people taking advice.

What do you think?


8 thoughts on “My Solution To The Advice Gap

  • HI Chris,

    Sorry to disagree but this so called advice gap only appeared as commission was withdrawn and the public in the main probably have no idea that this debate is ongoing or as is more likely they don’t even care.
    The gap as it is gleefully described is in the competence of the industry to demonstrate in a transparent manner some value in what we perceive as financial advice so that the public might think it is worth paying for.
    There was never, at least in public, a debate about how much we should be paid as that was decided by the providers and had little to do with what we or the public thought of the matter.
    If we look around us at how most other markets operate we can clearly see that he starting point is discovering what the market wants and then working out how to deliver it at a price which is profitable to you and palatable to the public.
    This industry is paralyzing itself trying to justify the income we got from providers and patently cannot get from the public.
    By the way exactly the same problem is going on with lawyers and accountants to name but two, who are successfully pricing themselves out of their markets and paving the way for technology to take over.

    • I’m afraid I have to disagree back, Phil. The advice gap has certainly widened since RDR, but there has always been a large section of society that has been unable or unwilling to seek financial advice.

      As one of the hosts at the recent round table event put it, RDR is creating professional standards to advise the ‘wealthy’ – the question now is how to reach the rest of the population.

  • I thought they used to do something like this, no?

    With my AE work, I ask employees about the bits of financial advice they’d most likely received from me, and it’s almost always, ‘How much is enough’? Not passive v active, or ETFs v pooled funds.

    I think Phil’s point is the industry seems to want to create a vision of complexity to create a value for their advice. He may be right, but it is/has been complex and some people need that help; most don’t.

    IMHO, the main problem is not the advice gap, but the savings gap. No point worrying about the former without the £££, yet basic advice from us would encourage it.

    This idea could be rolled out via employers. Simpler for distribution, as event places cost money and we don’t need to waste £££ where there is no need. Simple themes like saving are probably better value if you were to go about it.

    With study soon over for me, I’m looking forward to having a coffee with you both in 2016. Would be good to move on with practical stuff and beyond the back of an envelope concepts.

  • Well maybe some others can join in with their views but unquestionably the largest market for ” financial advice ” was always the poorer section of the population who almost universally bought life insurance to avoid a paupers burial and many who also bought endowments as savings plans to give their children a ” start ” in life. This section of society was always willing and able to get advice from the local industrial branch salesman who called every week to collect the modest premiums needed to provide the sense of security sought by most. This market was eventually abandoned by providers unable to adapt to regulatory changes not by the customers who were given no say in the matter.
    This is the marketplace advisers now choose to denigrate as beneath their financial levels.
    The market currently being gentrified as a ” profession ” had little to do with financial advisers but came about from rising property ownership – and prices – and from DB pension schemes which provided capital where non had previously existed. Rebalancing or churning the same money over and over again is hardly a sign of progress.
    Modern society has removed much of the need for low level protection with the comprehensive benefits now available to all in need but these are the same people who made the hard choice about spending sixpence or a shilling from their modest weekly incomes to protect their families and I have no doubt at all that given the right approach would welcome the opportunity to improve their future prospects.
    The population will soon be reached and serviced by the likes of Google, Apple or Amazon who will provide and present affordable solutions to their markets which of course is everyone . These companies will not have the issues of product liability or compliance since they will develop their service to eliminate such unnecessary evils. Nor will these companies attempt to disguise their offerings with complex jargon alluding to special skills because they will see such ploys as hindering business not enhancing it.
    And if I might end with the observation that you will probably never again find people in our industry as professional as the good home service guys who always remembered birthdays, weddings and every other imaginable detail of their client’s lives and who simply turned up at the right time, smiled, said please and thank you and simply did what they said !
    I do hope we get some other participation in this very important topic !!!!!!

  • Rather than arguing about how and when we got here, I doubt few people would disagree that there is an advice and savings gap in the UK. The question is, how to address it?

    I think Chris’ suggestion would help. It’s certainly worth a try, rather than just continue to wring our hands about the fact that there is a problem.

  • Hi Guys, not sure if I am agreeing or disagreeing with you!
    As on of those old IB agents (I started in 1983) I lament the loss of the home service brigade, I have been an IFA since 2000, and started my own business in 2010.
    I believe there are 1000’s of advisers out there like me who work from an office at home, have low overheads and actively target “normal” people. I liken it to Big accountants with fancy offices and small tax accountant/bookkeepers that work from home or small offices.
    Being small means lower overheads which means I feel I can service the lower end, in fact most of the time I find HNW clients a pain to deal with. There is no right and wrong just different business models. As has been said most people at the lower end do not want an expensive full holistic review of their issue they are looking for simple advice on what to do with, how best to deal with pensions, savings and inheritance etc.
    Now of course as a ruthlessly honest adviser who is zealous about looking after them, pretty much as in the old days so I can pick up business from families, friends etc I cast a general eye on their other issues to be sure there are no traps they can fall into but lets be honest in 90% of the cases most “normal” people have the same needs and it is pretty straight forward to cater for them.
    What we are missing nowadays is the promotion of “your friendly local adviser”, as it has always been it is about showing the client what they are getting for their money and how the fee they pay is worth the money be it financially or to get peace of mind.
    In order to achieve this in my opinion there needs to be a lightening of regulation, onerous compliance duties, reduction of fees etc to enable the likes of me and many others to service those people economically.
    The image of “commission hungry salesmen” could not be further from the truth amongst the guys I associate with, all of us are dedicated to our work to look after the smaller investor whilst yes of course making a living.

    Not sure if that is a rant or a ramble but it is my two pennyworth!!

  • @ David Crozier,

    I read over the weekend that Pay Pal are looking to widen their presence in financial services and I would expect they will be as successful with our market as they have been with their own and of course they already have the Big Data to use when planning their model.
    This issue of an advice gap is something I am passionate about because I believe that with the right proposition there is a huge opportunity waiting for us.
    Our efforts so far post RDR seem to be wholly about getting the public to appreciate us, how clever we are and why we have such high charges when the reality is that we should be trying to find out what the public want from financial advice and what value we offer and how much they would be prepared to pay.
    In the days of home service the public wanted simple life insurance and savings plans and the industry provided them and became hugely successful as a consequence.
    Our lack of direction stems from inside the industry with all of the people who have lived off the backs of advisers for years frantically trying to maintain what they see as the status quo.
    I look at the way Auto Enrolment is being approached by the industry with dismay as the same provider products and process which have completely failed to engage the public are being regurgitated all over again.
    If we don’t change then we will gradually give way to the Pay Pals and Amazons of this world as many other aspects have life have already done.


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