So the discussion rages on about what constitutes financial advice as opposed to information or guidance.
Whilst we all agree on the need to provide more help to enable people to make better financial decisions we are still not consistent in our use of the word advice. The more confusion there is, the less likely consumers are to engage with the process so isn’t it time we sorted this out?
It appears that even some people working in the financial advice sector are not clear where advice becomes regulated investment advice so it is no surprise that consumers are confused. The recent discussions between the FCA and the Treasury Select Committee brought up the subject again as part of their biannual progress report.
Then there’s the Money Advice Service consultation around their 2014/15 business plan. The MAS website adds further confusion, stating “we provide free and unbiased money advice”. The cost of regulation is a genuine barrier to regulated firms providing cost effective advice to the mass market, even more so if the public think they can get advice for free.
It is clear that more needs to be done to help people manage their money better across the UK. The MAS states “people often know what they should do but don’t act on this knowledge”.
This is why the role of the financial planner and financial adviser is so important, although MAS has managed to alienate planners and advisers: the professionals best placed to help people take appropriate action.
Thinking back to the days of generic advice and decision trees, we have to question whether a web or phone service providing generic guidance would be the most effective means of ensuring people actually take action.
That’s not to say there’s no room for it. We clearly need to boost the supply of financial capability, however, a lack of human intervention didn’t work then so why would it work now?
Whilst financial planning, like advice, is a term which means different things to different people, we believe that the financial planning process can play a key part in resolving the savings gap in the UK.
At the heart of financial capability is having a financial plan in place. At the IFP, we believe that the financial planning process enables the creation of a sound financial plan in six steps:
- Establish your goals in life; short, medium and long term
- Work out what assets and liabilities you have and write them down
- Evaluate your current financial position. What does your budget look like & financially how close are you to achieving your goals?
- Develop your plan, create a “route map” for achieving your different goals, protect yourself
- Implement your plan – make the changes and make it happen
- Monitor and review your plan at least yearly and make adjustments when needed
Many of the steps can be taken without the need for regulated financial advice; if it is needed it only comes in at step five. Such a plan provides the all important context for taking decisions around products and solutions, making sure that they are based on the client’s goals in life. It’s a powerful proposition and one which CFP professionals regularly report as inspiring their clients into taking action, as they can see why they need to take the steps, in order to get what they want from life.
Whilst the debate around advice is bound to keep going, we suggest two key things everyone can do right now to get closer to resolution.
First, encourage consumers to think about steps one to four, making them more likely to take action and make decisions to improve their financial capability.
Second, we can start by defining ‘advice’, ‘information’ and ‘guidance’ clearly and consistently and not using them interchangeably.
Sue Whitbread is head of communications at the Institute of Financial Planning