We are regularly inundated with statistics highlighting the fact financial resilience in the UK leaves a lot to be desired.
This summer was no exception, with government figures showing UK households spent around £900 more on average than they received in income during 2017, pushing their finances into deficit for the first time since the credit boom of the 1980s.
That is not an amount that can be found down the back of the sofa. Indeed, the Office for National Statistics says families are resorting to borrowing money and running down their savings, as the total figure for household debt reaches an astonishing £25bn.
This is a population screaming out for help with their finances. Initiatives such as Financial Planning Week helps build awareness of the importance of advice sessions and how they can boost overall financial wellbeing.
However, demonstrating this importance is only part of the problem. The advice gap is also driven by a substantial lack of supply.
A decade of disruptive regulation and legislation has led some advice firms, particularly banks, to exit the industry. The rush for the door ahead of the RDR meant the number of advisers fell a jaw-dropping 23 per cent from 2011 to the end of 2012, according to figures from Apfa.
Just six years later and advisers have again been faced with substantial regulatory change in the form of Mifid II. Clients will have it laid out for them in pounds and pence just how much they are paying for advice, platforms and pensions. Advisers, committed to delivering value for money, are likely to take on fewer, wealthier clients, widening the advice gap further still.
Banking on a turning point
The significant lack of supply and growing demand means the advice industry is ripe for more participants. As such, it is not surprising to hear Lloyds recently reveal it is looking to reintroduce financial planning into its branches. Other banks have made similar murmurings.
The majority of the population has a bank account, and they interact with their bank on a regular basis. This interaction offers banks an opportunity to encourage and provide advice, particularly for those in the early stages of accumulating wealth.
When it comes to advice, trust is of substantial value to consumers. Our research with Consumer Intelligence has identified the top three factors people consider when it comes to assessing advisers’ value: trust, personalised advice and value for money. Banks are well positioned to deliver this powerful trio.
Other advice firms should not be too concerned, as there is more than enough room in the market and a rising tide lifts all ships. Banks are well placed to provide advice initially for those in the mass affluent space, helping them to grow their wealth. These customers may then develop more complex financial needs and seek an adviser. Indeed, research has shown those who take advice are likely to continue to do so in the future.
Still, banks’ history with advice is not all rosy and the majority faced steep fines for unsuitable practice. The industry is a different place now, but all providers of advice need to remember that access is only one piece of the advice gap puzzle. Advisers also need to build trust and provide value for money to be successful.
Andy Thompson is chief executive of Intrinsic