Many people who could stand to benefit from financial advice aren’t receiving it – and don’t intend to any time soon. Research from the Lang Cat, which we were a sponsor of, found that just 11% of British adults have paid for financial advice in the last two years.1 Removing some of the hurdles they face could lead to almost double the number of people paying for professional financial advice.
The report looked to understand some barriers that stop people from engaging with an adviser. It found that the perception that only wealthier people tend to take financial advice is true to an extent – a survey of 210 members of its adviser panel revealed mean average client portfolios worth £350,000. However, it also found that advisers aren’t always turning away low-value clients. Instead, some are offering propositions specifically targeted to them.
In this article we’ll outline the barriers to taking financial advice as found from the research. Why it’s worth trying to close the advice gap – and how some advisers are taking action to do so.
Unless otherwise stated, all statistics are from The Lang Cat’s Advice Gap Report 2023.
The barriers to financial advice
To encourage consumers to connect with an adviser, the research suggests there are three main barriers to overcome. If this can be achieved, it could lead to almost double the number of people – an estimated 3.12 million – paying for advice in the UK.
1. A lack of trust in advice
Consumers lack trust in individual advisers as well as advice firms and this has worsened since the pandemic. Edelman’s Trust Barometer 2022 found only 38% of people in the UK trust financial advice firms, up one percentage point from 2021.2 Advisers track lower than the wider financial services sector on trust – meaning people have more faith in mortgage lenders and credit card companies.
2. A lack of awareness of the value of advice and how to find an adviser
37% of respondents said that to pay for advice, they would need to be convinced it would save them money – and 24% would need to be sure how to pick the right adviser. With the FCA’s Consumer Duty framework, demonstrating good value for money is likely to become an even bigger focus for attracting new clients. In terms of picking the right adviser, the research highlighted the importance of personal recommendations from trusted sources – 46% of respondents found their adviser through a referral.
3. A lack of confidence in managing money
Just over a third said they find managing money and making financial decisions challenging. The confidence of individuals in ‘going it alone’ on personal financial management activities varies significantly between the type of activity. Respondents were less confident about managing pensions and investments than they were with choosing a current account, savings product or credit card.
How we can work together to close the advice gap
We recognise the value of financial advice, and in partnering with advisers to help you access the new opportunities that could open up as the advice gap closes. The Lang Cat’s report suggests two key ways this could happen – by building trust among consumers and encouraging referrals.
1. Building trust
The research argues that the advice industry needs to improve its public perception and champion the value of quality financial advice. Working together, providers and advisers can champion financial advice and bring it to a wider audience. Our customer financial advice hub aims to do this by giving consumers the information they need to take their first steps on the advice journey. The Consumer Duty rules could also help build trust by establishing a focus on value for money and better outcomes for customers.
Acting as a ‘wellbeing maximiser’ – with a focus on improving financial wellbeing rather than just focusing on financial returns – could form deeper, longer-lasting relationships with your clients. You could also gain more referrals and enjoy higher profit margins. We discuss this more in our infographic how to become a wellbeing maximiser.
2. Encouraging referrals
The research found that referrals are the most popular way that those currently paying for advice found their adviser. And yet, many people who want to pay for adviser are struggling to find one. By encouraging referrals, you could see a direct benefit to your business, while also sending out a wider message that advisers can be trusted. You can learn more about how to encourage referrals to your business from other professionals in our guide to developing professional connections.
If these two areas can be addressed, more consumers may look to financial advice. This may well include lower-value potential clients. How advisers handle these prospects will be important for the future direction of the advice gap.
Managing prospects with less accumulated wealth
Here are some of the ways advisers are choosing to manage prospects with less accumulated wealth.
1. Serve all clients regardless of wealth
Recognise the potential for a high-income, low-asset client to become a commercially viable client in the long-term. Some advisers noted that they charge a flat fee and consider the idea that you need investable assets to pay for advice outdated, so wouldn’t discriminate by size of wealth.
2. Simplify advice models and fintech
8% of advisers surveyed said they planned to build a simplified investment service to serve less commercially viable clients. While some were interested in doing this using a scalable fintech solution, it wasn’t currently a priority. One adviser suggested the FCA allow regulated advisers to offer one-off non-regulated advice, recognising that some simple advice is better than none.
3. Pro-bono help and education
If you don’t want to offer a fully tailored advice service to low-value clients, you could consider helping them ‘pro-bono’. You could signpost to other services, educate or give the information needed for an individual to help themselves.
Why closing the advice gap is worth it
From a consumer’s perspective, financial advice could promote greater financial wellbeing. Our Financial Wellbeing research of 2,000 UK adults found that those with a financial adviser felt more joy and satisfaction, and less anxiety, with respect to their money. Building wealth is important too – the Lang Cat’s analysis quantified the value of advice to clients as an additional 3% in annual net returns.
The building blocks to financial wellbeing strike a balance of finding joy and purpose in life as well as becoming more empowered and financially secure. Read our guide to helping your clients become ‘all-rounders’ when it comes to financial wellbeing.
A long-term strategy
The case for making advice more widely available is important, there’s a financial benefit to closing the advice gap too. Supporting less wealthy clients now might not have an immediate pay-off – but, with your help, these clients could see their wealth grow over the long term. Through word of mouth, it could help you to build trust, increase your referrals and ultimately, grow your business.
You can find the full Lang Cat report along with other reports and resources on our Research and Insights page.