Financial advisers need to tackle perception problem to close advice gap
In the last two years, just 10 per cent of the UK has taken paid-for financial advice, according to OpenMoney's latest 2020 Advice Gap Report.
As coronavirus approached, the research showed that many people were already in a financially precarious position. Just under one fifth (18 per cent) could cover essential outgoings (mortgage/rent, utility bills and food etc) without any income for less than three months, while 21 per cent didn't have any savings at all. Even those with the safety net of savings and investments were not shielded from the impacts of coronavirus in the first quarter of 2020, as The Bank of England cut interest rates, markets became volatile the FTSE 100 posted a 25 per cent fall.
If the industry is to close the advice gap and help improve people’s financial futures, it is clear that it must first tackle the perception gap.
The advice gap report shows that when people take specialist money advice, the vast majority have a good experience. And yet in the last two years, only 12 per cent of our respondents have accessed free money advice and just 10 per cent have taken paid-for advice.
OpenMoney invited respondents to share their perceptions of financial advice and the results were telling. The word that most frequently came to mind on hearing the term ‘financial advice’ was ‘expensive’, followed by ‘untrustworthy’, with words like ‘scam’, ‘con’, ‘rip-off’ and ‘money-grabbing’ also prevalent. Despite long-standing legislation banning its use, commission was also mentioned several times.
While more positive words were used by many respondents, with ‘managing money’ a popular association along with ‘help’, ‘expert’ and ‘trust’, they were largely outweighed by the negatives.
When those respondents who had not paid for financial advice in the previous two years were asked how likely they were to do so in the future, the result was clear; 79 per cent (2019: 77 per cent) are unlikely to pay for financial advice and only 11 per cent (2019: 10 per cent) likely.
The big question for advisers then, is what, if anything, would change that?
The two main themes to emerge were cost and confidence. While only 15 per cent (2019: 17 per cent) stated explicitly that advice would have to cost less, a further 22 per cent (2019: 21 per cent) would need to earn more and 34 per cent (2019: 35 per cent) would need to be sure it would save them money overall.
There is also a lack of confidence both in their ability to select the right adviser (18 per cent, 2019: 21 per cent) and in being able to trust the advice (28 per cent, 2019: 31 per cent).