One of the things you learn after more than 25 years writing about the financial advice industry in all its diverse forms is how the sector so often behaves in a self-congratulatory manner.
Advisers regularly find the time to pat themselves on the back, be it in print form or at conferences and other events.
I still remember with a strange mixture of awe and nausea how, back in the 1990s, advisers’ conventions would regularly wheel out a succession of lachrymose widows and orphans to address their audiences. Their key message always seemed to be that taking an IFA’s advice had been the best decision their husbands or fathers ever made, in tragic hindsight of course. They were also subliminally telling their adviser audiences what a wonderful service they were providing their clients.
It is hardly surprising, then, that when I spot a headline telling me a study has yet again “proved” advice leaves those who take it better off, my natural temptation is to quickly cross the road. This helps explain why, when I first saw there was a report published by the International Longevity Centre in July which attempted to quantify precisely by how much those who took advice were better off financially, my first instinct was to treat it with suspicion.
My chief concern was about the methodology of the report. How do you measure exactly the difference between someone who took advice and another person who did not? What kinds of advice are we talking about? And how do you differentiate between those who are affluent already, who take advice and become even better off, and those whose financial resources are far more limited and stand to gain less from the process of taking advice?
Thankfully for me, my colleague Jeff Prestridge, personal finance editor of the Mail on Sunday, is made of sterner stuff and actually studied the report, subsequently writing about it with great enthusiasm. His enthusiasm made me go back and read it for myself. It must be said that the 46-page report, entitled Value of Financial Advice and which is sponsored by Royal London, is an exceptionally good read.
The most striking thing is that, unlike the overwhelming majority of self-aggrandising accounts of the role of advice, based largely on surveys in which punters answer questions put to them but do not really quantify their responses, this one wears its underlying statistical processes proudly on its sleeve.
For example, if you want to understand how a group defined as “affluent but advised” managed to accumulate 17 per cent more in investments and 16 per cent more in pensions than its “affluent but non-advised” counterpart, this report will tell you precisely how.
The Value of Advice contains a wealth of information that builds up a general picture, layer upon layer, which is very robust. More significantly, the report also raises some key public interest questions that need to be addressed by the Government, regulators and employer organisations.
Maybe it is time we considered more seriously the recent suggestion by Jargonfree Benefits director Steve Bee in Money Marketing for a free national advice service for the less affluent in our society
One of the most interesting findings to emerge is that while, yes, those who were already affluent are more likely to take advice than those who are not (no surprise there), one of the biggest drivers to seek advice is financial capability – that combination of knowledge and skills which improve a person’s ability to manage their money during life events.
The report found that highly financially capable individuals with less than £500 in assets are only 2.8 percentage points less likely to receive advice than the least financially capable people who have more than £36,000 in financial assets (19 per cent compared with 21.8 per cent). In other words, financial capability is a stronger driver of the demand for advice than wealth.
The implication in terms of how the Government should be aiming to massively improve levels of knowledge and understanding of financial issues, as well as broadening them out to cover related topics such as investments and pensions, are massive.
The outcome of such a strategy could be a game-changer in terms of the potential long-term savings of millions of households in the UK.
The other key issue for me was the variation in relation to the term “financial advice” that people in the report were defining themselves as making use of. It covered a wide assortment of advice, from the expected in the form of banks, wealth managers, advisers and so on, to trade unions, the Citizens Advice Bureau and even the much-maligned Money Advice Service.
This, in turn, led to a lack of differentiation between what I define as full-fat advice and the more generic guidance provided by some of these organisations.
Maybe it is time we considered more seriously the recent suggestion by Jargonfree Benefits director Steve Bee here in Money Marketing for a free national advice service for the less affluent in our society. This too could be transformative for millions of families.
These are two issues that urgently need to be addressed. In the meantime, I want to doff my cap to a document which both quantifies the benefits of advice for the first time, while simultaneously putting forward ideas as to how to ensure some of the gaps in the willingness of consumers to take a closer look at their financial needs might usefully be addressed. I urge everyone to read this report.
Nic Cicutti can be contacted at firstname.lastname@example.org