I read two reports recently about the need for financial advice. The first, from the FCA and published last year, suggested up to 18.2 million people in the UK who had probably needed financial advice over the previous 12 months had not taken it. That number brought home the scale of what is surely a national problem.
If 18 million people who need advice on complex financial issues in a year are not seeking and taking advice, then there must be one of two things going on: either people don’t know they could benefit from professional advice, or they have no access to it.
The latter would appear to be the case. According to a more recent report from OpenMoney, a digital advice firm, 19.8 million people in the UK would like to have access to financial advice but don’t know how to get it. Those numbers, 18.2 million and 19.8 million, give credibility to the scale of the problem. It’s huge!
The cost of financial advice may also be a factor and could itself restrict access for people even if they are fully informed about how and where to get it. According to the Money Advice website, the going rate for advice fees ranges from £75 to £300 per hour. At the top end, that exceeds even the cost of taking legal advice, which public sources say can be expected to cost £200 per hour.
The relatively high costs of taking financial advice and legal advice being broadly equivalent must surely act against financial advice becoming widely available to tens of millions of people a year. I do not think the legal profession could possibly provide legal advice to close to 20 million people a year and command such fees, but I presume it does not have to do so.
In our modern times, where a large proportion of the population has access to powerful handheld computers and the internet, there is obviously a place for AI and algorithms to help spread both financial and legal advice. Both professions have already embarked on such solutions.
But a computer programme is no real substitute for one-on-one advice, just as is the case with the medical profession. Speaking to a doctor may well come as the result of online screening, but very few people would see an online consultation with an algorithm as being satisfactory.
The questions of availability of financial advice and its cost are twin problems the industry needs to address urgently if it wishes to make advice available to all. The most obvious way to deal with accessibility is to engage employers in the process. All workplaces now have pension schemes – one of the most complex of financial arrangements. Making advice available on the back of that should be a natural development and could be made widespread through online platforms.
One-on-one financial advice must be available at the end of any online solution for it to be widely accepted. Yet the cost of such advice needs to fall substantially, perhaps even to nothing, for it to become commonplace to access advice whenever required throughout life.
This would require a complete re-think of the way financial advice professionals themselves are remunerated. Maybe that is the biggest challenge of all?
Steve Bee is director at Jargonfree Benefits
Follow him on Twitter @PensionsGuru