Article Stuck in the advice gap? How targeted support could help you

Have you ever faced a financial decision and thought it’d be valuable to get some support from a financial expert? Perhaps you’re considering if you’re saving enough into your pension or wondering about investing some of your cash savings. The most comprehensive source of support is from a financial adviser who’ll consider all of your personal circumstances and give you a personal recommendation.

But financial advisers need to charge for the extensive work they perform and unfortunately, many people find they can’t afford this. This means many people are stuck in what’s known as the ‘advice gap’ and this can put people off taking any action to improve their finances. Today in the UK, this scenario is a problem for many. But the good news is that it’s a problem the financial services industry, Government and regulators are very keen to solve and are busy working on an initiative called ‘targeted support’.

To keep you informed and up to date, in this article, I’ll explore what we mean by the advice gap and break down how I think this new proposal could potentially help reduce the gap and support many individuals navigate future financial decisions.  

What is the advice gap and are you in it?

Every year, millions of people benefit from obtaining financial advice from a qualified adviser. But statistics show that in 2022, only 8% of adults received financial advice.¹ There are millions more who would benefit, but either can’t afford it or don’t know where to obtain it. This is what creates the advice gap.

If you’re in the advice gap, you can get information from financial providers or from various Government agencies. This can include very generic ‘financial guidance’. But you may feel you’re being left to navigate the complex financial landscape alone.

Guidance vs advice

Ideally, when it comes to making decisions about how to manage your finances, you would speak to a financial adviser. Financial advice is a paid service from a regulated firm or individual who can review your individual circumstances and goals, and make a personal recommendation of a course of action that’s best for you. This will include a specific investment or product recommendation. Financial guidance on the other hand is generally free but won’t take into account your specific circumstances – and won’t make a recommendation – you need to make decisions for yourself.

Guidance can be a useful tool for individuals looking to educate themselves on topics or perhaps review choices. But financial decisions can be complex and without an adviser, there’s potentially a risk of making poor choices. Also, opting for support elsewhere, such as online ‘finfluencers’, can be particularly risky.

Unfortunately, at the moment, financial institutions such as pension or Individuals Savings Account (ISA) providers are often unable to bridge the gap. Due to industry regulations, they can only offer a more personalise service if they have authorisation to offer advice. Where they do, they need to go through the full costly process and charge for that – so we’re back in the advice gap.

But the good news is this is likely to change, with the creation of a new more personalised guidance service called ‘targeted support’.

What is targeted support?

The Government and the Financial Conduct Authority (FCA) are working together on how a targeted support regime could support pension and investment decision making. Think of it as a middle ground between advice and guidance which aims to support you with suggestions that could benefit people in similar circumstances to you, based on some limited information about you.

How might it work

Once the rules come in, financial firms who obtain permission from the FCA to offer ‘targeted support’ will look for ‘scenarios’ where groups of their customers who don’t receive financial advice would benefit from their extra help.

These groups will be based on common characteristics – such as their age, their current savings habits, or where they’re invested.

They’ll then suggest a course of action to support ‘people like you’ in meeting general needs and goals.

The work involved won’t be anywhere nearly as detailed as the process of providing financial advice, so it will be less costly to offer. Indeed, many firms may offer it to customers free of charge.

Things to consider

Going forward it’s important to remember that ‘targeted support’ is not a replacement for financial advice from a regulated firm. It will not be tailored to you as an individual or recommend a personalised plan. Instead, you’ll receive suggestions based on people with similar circumstances to you.

But despite its limitations, for many, I believe this will be far better than being left to their own devices or using information or general guidance. For some, having gained more of an understanding, they may go on to recieve financial advice.

Looking to a future of targeted support

We've some waiting to do until we know the full details of targeted support. The FCA plans to publish a further consultation in June. But I’m hopeful that in the not too distant future, targeted support will become a reality and provide real benefits for consumers. For now, keep an eye on the upcoming updates. It’s one to watch. 

If you’d like to get advice and don’t have a financial adviser, visit MoneyHelper to find one in your area, or contact Origen Financial Services.

Origen Financial Services Ltd, is wholly owned by Aegon UK plc but operate independently to us.