Closing the Advice Gap

Currently, a fraction over four million people in the UK are receiving professional financial advice. Yet there are some 15.6mn UK adults with investible assets of £10,000 or more, 37 per cent of which hold their assets entirely in cash.

This illustrates a clear disconnect between the number of people who could reasonably invest a portion of their savings and the number that actually do. Whilst one of the major drivers of this disconnect is the cost of advice this, in turn, is driven by a failure within the regulatory system to support more consumers in making complex financial decisions, contributing to the much-discussed ‘advice gap’.

The only options currently available to savers are either guidance or full financial advice due to the current strict suitability requirements, which prevent financial advice firms from offering a simple, cost-effective service to potential UK consumers.

The current debate around how UK savers can be supported tends to focus on how the mechanisms to help those who are already invested can be improved. But research consistently shows that those on lower incomes are far less likely to access professional advice because of the cost of doing so, despite the fact that these are the very people who would benefit most from advice in the long term.

In order for our industry to grow and prosper, along with the clients it serves, this needs to be addressed with some urgency.

In our recently released policy paper entitled “Up on the Ladder”, we outline our proposals for a simplified advice structure which would benefit a greater number of UK consumers. However, PIMFA believes widening access to advice can only be achieved by giving advice firms the ability to sit down and actively engage with more consumers than they currently do to help them overcome some of the basic barriers they have towards investing, such as behaviours, perceptions or less exposure to financial education.

PIMFA is urging the Government and the FCA to consider creating less stringent suitability requirements for clients that have demonstrably simple needs, allowing them to be presented with solutions which cater to those needs. This could be achieved through an advice process – a new regulatory requirement as set out in the Handbook – which enables firms and advisers to extract basic information from clients within a restricted set of questions and recommend products and services as a result.

Outlining a solution, based on a restricted fact find, should not only give consumers confidence to proceed, but also ensure they are placed in a solution which is good for them, not just good enough for most people, as is the case with guidance today.

Ongoing, bespoke financial advice will create the best financial outcome for UK consumers. However, the gap between what is in the absolute best interests of the client and what would almost certainly be better than doing nothing at all, remains far too great and we believe that it should be incumbent on UK policy makers to work towards closing it.

Creating a simplified advice process which allows firms to diverge from current suitability requirements to support clients in making decisions which will likely be good for them should provide a cost effective and easy to navigate way for firms to provide a simple, tailored solution across a restricted set of simple products and services.

PIMFA is committed to closing the advice gap in the UK to increase the number of people investing and saving. At present, we believe that the options available to consumers are too binary. It makes sense to us to seek to put another step on the advice ladder to help UK consumers bridge the gap between being guided towards what people like them could do and what it is absolutely in their best interests to do.