If you put the words ‘advice gap’ into a search engine, among the top results would be: ‘Advice gap widens despite rise in robo-advice’, ‘Financial advice gap has widened since 2015’ and ‘Watchdog probes financial advice gap’.
It is easy to comment about serious matters yet often difficult to do something about them. But do something we must, because many people with modest financial circumstances are being treated as second-class citizens when it comes to getting help and advice on their personal finances and pensions.
It is easy to dismiss the advice gap problem as being down to cost and regulation but these old chestnuts are only part of the problem. Even if advice cost less and some regulations were more customer friendly, the uptake probably wouldn’t increase dramatically.
The real problem is that many people either don’t want advice because they think they can make their own decisions or they don’t think advice is relevant for them.
So, leaving aside cost and regulation, how do we help more people overcome their aversion to financial advice and encourage them to speak to a financial adviser?
I think I found part of the answer when writing a guide to financial advice. I came up with several compelling reasons why financial advice was important: there is a lot at stake so you shouldn’t gamble with your personal finances; be serious – free advice, or no advice, is not enough; it’s more complex than it seems and it’s easy to make mistakes; it’s difficult to make the right investment decisions; you can’t always trust your own instincts; and sometimes you simply must take advice.
‘So what?’ you may ask. ‘Nice words but they will probably fall on deaf ears.’ It was only when I looked into each one that the reasons why advice was important hit me.
It is hard to know where to start but ‘Be serious – free advice, or no advice, is not enough’ is a good place. The help and information from Pension Wise (at least when Michelle Cracknell was in charge of TPAS) is brilliant but it is only ‘guidance’ and therefore lacks one important ingredient: it does not tell people what is the best solution.
Combine this with ‘It’s more complex than it seems and it’s easy to make mistakes’ and ‘It’s difficult to make the right investment decisions’ and it is easy to see how many people sleepwalk into making poor financial decisions, which can have a seriously detrimental effect on their financial wellbeing.
Obviously, financial advice must be profitable for the adviser and beneficial to the client. But, if we really want to help people make the most of their investments and pensions, we must find a way of communicating the reasons why good advice is important for them.
If anyone knows how to do this in a way that will not fall on deaf ears, please let me know.
William Burrows is retirement director at Better Retirement. Follow him on Twitter @BillyBurrows