Article by Phil
New research by Open Money has found that access to advice is getting worse not better across the UK. Their latest study looked at the “advice gaps” first identified by the Citizens Advice Bureau back in 2015.
These were:
The affordable advice gap – where people want to get advice but can’t or won’t because the cost of advice is too high at current levels.
The free advice gap – where people want advice but can’t afford to pay anything for the advice and therefore need a free service to help them.
The awareness gap – affecting people who don’t know that advice could help them, or even where to access advice in the first place.
The preventative advice gap – this is where advice would help people by preventing harm and bad decision making but isn’t available for all of the above reasons.
The latest figures don’t make for good reading. Open Money estimates that six million people are in the affordable advice gap, twenty million people, or almost 40% of the population are in the free advice gap. Fifteen and a half million people in the awareness gap and sixteen million in the preventative gap. That’s a lot of people who would benefit from financial advice, but who aren’t getting it for many reasons.
The pandemic may have affected the figures and caused an increase in numbers, because correspondingly only 7% of adults are currently paying for advice which has fallen from 10% back in 2020.
Perhaps surprisingly, younger people are less concerned about paying for and the costs of advice than their older compatriots.
These figures are similar to those seen in other surveys like the Maps Financial Wellbeing Survey last year which found that 36% of people are worried about their finances and 45% don’t feel confident about managing their finances.
Sadly, we already know that the benefits of advice are significant and long-term studies continue to show that advised individuals do significantly better than those who haven’t been advised.
There are lots of reasons for the various identified gaps, but one of the big reasons is a shortage of Financial Consultants. This is only going to get worse, with an estimated 7,000 advisers likely to retire in the near future. There are also issues with representation. For example, only 16% of adviser are women, compared with half of the population.
These are important issues which need to be addressed by the industry but really need the FCA to consider and address.
Following on from this research on the Advice Gap, other research by SimplyBiz suggest that the minimum break even for advised investments is £86,000. If you have less than this then it’s probably not worth it for a financial adviser to deal with you.
The figure is arrived at by calculating the average time needed to deal with a client’s annual review (estimated at 5.7 hours, which sounds about right to us) multiplied by the average hourly rate for advice of £150 per hour (we’re not sure if this is high enough, considering the increasing costs of regulation). That means that it costs advisers £855 to service a client.
If clients are charged 1% of their investment as annual charge, (which is higher than our charges) then a client would need to have £85,500 in investments for the adviser to just break even. If an adviser wants to make a profit then they have to decided what they consider an appropriate margin to be and take it from there. So, a 100% markup would need investments of £171,000 to achieve this. If like us your ongoing advice charges are less than 1% the amount needed only gets higher. At 0.75% annual charge for example, you’d need assets of £115,000 to cover the costs or £230,000 to create a margin. That assumes the assumptions are correct. You could easily argue that £150 an hour is not enough to cover operating costs and a reasonable margin.
When you look at this way then you can understand why the affordable advice gap is only getting bigger.
One solution is to use technology. We offer a lower cost digital service which allows access to investments online and access to advisers online rather than face to face. Another alternative is to work on a transactional only basis, so only charging when specific advice is required. This can work well combined with a digital option for those with lower investments under advice.
