In the past two decades, the UK has experienced significant social and demographic changes that mean people are faced with more moments when they have to make important financial decisions.
Previously, the biggest financial decisions typically revolved around getting married, buying a home or having a family. But the impact of an ageing population, changes to government policy and new working patterns means many of the old certainties have have disappeared.
This is why it’s vital that as many people as possible can access professional advice. A wealth of research shows people who have engaged with the advice sector are significantly better off in retirement than those who have not.
People who receive advice feel more confident about their finances overall and have increased financial and mental wellbeing. Research by Open Money shows the vast majority (86 per cent) of those who have taken professional advice had a positive experience.
Despite this, most people do not engage with professional advice. Open Money’s research also found just 10 per cent of respondents had taken paid-for advice, while 79 per cent of those who had not, had no intention of doing so. For many, the cost of advice is a barrier, but it is not the only one. The lack of uptake is also the result of a lack of awareness of the benefits and a lack of trust.
Advice can be expensive, in part because costs to the industry have risen over the past 20 years. Regulations designed to professionalise the industry and protect consumers, while beneficial have had the unforeseen consequence of creating an “advice gap”.
Meanwhile, scandals have contributed to a general lack of trust and technology has led many people to take financial decisions without necessarily being fully aware of the risks, or in the worst cases enabled criminals to defraud unsuspecting victims.
Here at the Personal Investment Management and Financial Advice Association (PIMFA), we believe that everyone who wants to receive professional advice should be able to do so.
We know from research by Royal London that those least likely to access advice due to the cost are the people most likely to benefit from it. This is why we are working with regulator the Financial Conduct Authority (FCA), and others, on the creation of a simplified low-cost advice model that would make advice more accessible to more people.
We want the FCA to work with us to remove, permanently, those bad actors who rely on the rest of the industry to compensate the clients they have failed through the Financial Services Compensation Scheme. Doing so would reduce the burden on the scheme and, therefore, reduce the single biggest cost pressure our industry faces.
In addition, we want people to feel safe from fraudsters online, which is why we are campaigning for financial harm to be included in the government’s Online Safety Bill.
PIMFA also wants to resolve how advice is defined and charged. Currently, the definition of advice is derived from European legislation, but now we have left the European Union there is an opportunity to provide a clearer definition that works for the UK advice industry and a rulebook that enables flexible advice models using technology. Redefining advice would also allow for the creation of a model where charges are tiered based on the complexity of the advice offered.
Moreover, we need the government to work with us to improve financial literacy in the UK and encourage a savings and investment culture. This can only be achieved by teaching younger generations how to manage their finances, by encouraging people to invest for the long term at an earlier age and by promoting the value of advice.
PIMFA and our members want to build a robust advice industry that is fit for the future and accessible across society: a market that allows advisers to thrive, develop and innovate, and provides consumers with professional and affordable advice. Ultimately, this will be a market that works well for the UK economy, not only by increasing levels of savings and investments, but by improving the nation’s financial and mental wellbeing too.