Much has been made of the so-called advice gap. Almost everyone could benefit from good financial advice, and yet only a very small proportion of people in the western world, typically around one one ten, actually use an adviser.
It’s commonly accepted that the main reasons why the number of people receiving advice is so small is that most people simply can’t afford it and that they have don’t have enough money to invest to make it worth the while of most advisers to take them on as clients. But the research suggests the picture is more nuanced than that.
New research on the advice gap in the UK has just been published by the online financial advice service OpenMoney in conjunction with YouGov.
The report finds that financial difficulties can have a variety of causes, from unexpected one-off costs and significant life changes, to income not meeting essential expenses and difficulty keeping up with debts. Although many people who have financial difficulties cut back on spending (60%) or start budgeting/ budget more strictly (43%) to resolve their financial problems, a large number dip into savings (37%), borrow from family and friends (28%) or take out a loan (17%). Just 7% of those surveyed seek financial advice.
The gulf is widening
The research also reviewed four advice gaps identified by Citizens Advice in 2015 to understand whether they still exist and if the availability of advice services has improved over the last four years. It found that all four gaps remain substantial and three have widened.
Nearly 400,000 more people now fall into the affordable advice gap, which affects consumers who are willing to pay for advice but think it is too expensive. The research suggests that up to 5.8 million people would be willing to pay for advice if it cost less.
The free advice gap, which affects people who want advice but are unable to pay for it and are unaware of, or unable to access, free services, has increased by over 5 million people in the last four years. Up to 19.8 million people who feel they would benefit from free advice have not received any in the past two years.
The awareness and referral gap, which affects people who do not know where to get advice, has increased by over 5 million people since 2015. As many as 15.2 million people who would benefit from free advice not aware of public financial guidance.
The preventative advice gap affects those for whom non-money issues can impact their financial position. Up to 20.8 million people have fallen into the preventative advice gap at least once in their life, although this is down from 23 million in 2015.
Large numbers "struggling"
Commenting on the findings, OpenMoney’s CEO Anthony Morrow says that “although the majority of people claim to be comfortable managing their money and planning their financial future, in reality a high number are struggling to keep on top of their monthly expenses.
“Many are prevented from fulfilling some of their desires due to monetary constraints. Yet very few are taking financial advice, even though when they do, the experience and outcome for both free and paid-for advice is largely positive.
“It is clear that many more people would benefit from taking financial advice and the reasons why they don’t are not as straightforward as it being too expensive, or individuals not having enough money."
Robos must step up
Morrow also sees a greater role for robo-advisers that offer more than just investment solutions.
“‘Robo-advice’ is often touted as filling the mass market advice gap," he says, but while some digital providers now offer one-off advice, many simply offer online investment management without real financial advice and personal recommendations.
“Without offering personalised ongoing advice, these digital wealth managers cannot replace the service provided by advice professionals.”
The Financial Conduct Authority (FCA) recently signalled its intention to look at the advice gap in its call for input to evaluate the success of previous regulations the Retail Distribution Review and the Financial Advice Market Review and discover how consumers access advice and guidance and the barriers to making services more affordable.