Within the UK advice gap, there are 3.7 million consumers who are not only open to receiving professional financial advice – but have more than £50k to invest. This accounts for over £185bn of unadvised investible assets.
In our latest research, advisers share their views on how our industry can help to connect more of these people with great advice:
In this podcast, we debate the key findings from our research with some industry experts and commentators. We explore the significant untapped opportunities that exist for advisers – and how our industry may need to adapt in order to reach them.
Hello and welcome to our podcast. My name is Clare Moffat and I’m the Head of the Development and Technical team here at Royal London.
Today I’m delighted to be joined by three special guests:
As you may know, Royal London carried out some research last year where we explored the advice gap. One of our key findings was that, of the 39 million UK adults who are currently unadvised, there’s a population of 3.7m who not only have significant assets to invest – but are also open to receiving professional financial advice.
We’ve now carried out some further research with advisers to understand how our industry can help to connect more of these people with good advice.
In this session we’re going to dig into the common themes which have emerged from that research – and discuss how our industry might work together to help more consumers find the financial help they need.
If you’d like to read our full research report, you can download a copy from our website at adviser.royallondon.com/FutureOfAdvice.
Our research shows that there are more advisers who see the advice gap as an opportunity than those who don’t. Yet, from some of the comments we’ve had, I think it’s fair to say a lot of advisers are quite surprised at just how big that opportunity could be.
Sally and Tim, is this something you can relate to and, if so, can our industry be doing more to help showcase the potential growth opportunities that are out there.
I'll ask that question to Sally, first of all.
I think advisers do see the advice gap as an opportunity. Because I actually think many advisers are also excited by reaching out to new consumers and potentially different consumers looking at how we speak to the audiences that are sort of in the digital natives – and how we need to shape our future of advice to meet that new consumer demand.
I think also those that have got very established relationships, as most planners do with their clients, can see how their children and their children's children, there's always an increasing need for those next generations coming through to seek financial planning advice. So, I think that the advisers do see the advice gap as an opportunity
In terms of us helping to showcase the potential growth opportunities out there, I think this also comes down to how we showcase advising and planning as a profession to ensure that people coming into it, there's diversity, obviously we're all aware that, you know, planning and advising is an aging profession at the moment and we do need, it is going to be essential to get newcomers into the profession to ensure actually that the advice gap doesn't get bigger.
Thanks Sally. Same question for you, Tim.
I absolutely agree with Sally.
I think there is a degree of recognition of the opportunity and the size of an opportunity. But I think that sometimes there’s some myths that get in the way of serving some of the less traditional consumers and potential customer base; whether that be younger people, who actually do want some help. And sometimes things get dismissed because, for example, advisers might think they’re only interested in saving for a deposit for a home.
Increasingly, people are buying their first home in their late thirties or early forties – so potentially looking save for a 15-to-20 year time horizon.
They are increasingly interested in investing. We see that in crypto and the memes stocks - but actually, the popularity of a number of financial TikTok and Instagram accounts should show that there is that interest.
We're also looking at different sources of wealth coming from particularly the tech sector and that desire to engage via technology. And as we've seen through the pandemic that desire or willingness being much wider than I think previously predicted means that as well as there being an opportunity for new customers - there's opportunities for new ways of engaging with those customers.
So I think what we can certainly do is promote those opportunities and help adviser's understand where those opportunities are and what they might be able to do to access them, as well as promoting the sector more widely with those potential customers.
Thanks very much, Tim.
Jamie, as I said at the start, this is yet another piece of research Royal London has carried out into the advice gap. Can you summarise why this particular issue is so important to the business?
Yeah, thanks, Clare.
Royal London takes the view that certainly independent financial advice is really the gold standard for consumers. And, you know, we're keen to explore ways that we can make this available to more people, ultimately, make it more accessible. So it's part of a series of research pieces that we've done as a number of people will be aware.
So, we started by looking at the value of advice and we moved onto understanding the advice gap and exploring the reasons for it.
And we're now moving on to trying to facilitate some solutions in this area to actually closing that advice gap. So, that so, that's kind of where we are in the series. And, I think it's interesting, just picking up on some of what's been said there, it's interesting the answers that we had from advisers most recently.
We do see the majority of advisers saying that they are, let's say, content with their existing client base. And, I can understand that because it's a very stable client base. You tend not to, my understanding anyway, people aren’t moving around between advisers shopping around every year in the way that happens in some other industries. Advisers tend to keep their clients because they look after them. It's a very stable client bank. So I understand that.
This is really about, saying, well, there are a number of other potential clients out there, and this is about, not just about the stability of the business, but perhaps growth. And certainly, again, a large number of advisers said that they are interested in the advice gap for that reason. So, I think we're really keen to explore that further and help work through the problems to doing so.
The majority of advisers believe that there’s a need to improve consumer education about the benefits of professional financial advice, if we’re to encourage more people to seek it.
Interestingly, only 1 in 5 advice firms that say they provide education on the benefits of their services to potential clients.
Our question for all of you: what can our industry be doing to help with this?
I'll ask that question first of all, to Tim.
I think there’s a lot our industry can do, but we can't do it all on our own. And I think we've got to be careful here that we're not, you know, wishing for better customers because actually, it's not entirely about customer education. It's also about opportunity and timing, and other factors.
So what we can do is make sure that, as an industry, we are ready and willing to demonstrate the value that we provide. But we're also supporting education from the earliest stages. Be that financial education in schools, where PIMFA is certainly arguing for the extension to elements of the national curriculum that currently only covers secondary schools into primary schools because we know financial habits, particularly whether you're a spender or a saver are set very, very young and the encouragement of academies and free schools to cover that element of the national curriculum, if they don't have to cover it at present
Then, looking at what we can do as an industry working with The Money and Pension Service to create a sort of natural flow for working age adults and retirees who can find guidance, if they need guidance, that that, can then be seamlessly handed from the guidance provided to full financial advice, as and when that is appropriate for the individual.
Because, actually, the most effective form of education really will happen at the point where it is of most relevant to the individual - be that starting a new job, getting married, having children. These sort of life event models that I know many financial advisers use themselves to make sure that education and that assistance is happening at the right moment.
That's great, Tim. Thank you. Sally, what are your thoughts?
Yeah, I mean, I extend, I guess, partly what Tim says about financial literacy piece – obviously in England it’s secondary schools, Northern Ireland and Scotland it’s in primary schools. But, but ultimately, there's lots of research. We did some recently about how habits start to be formed around the age of seven. So, there's definitely a literacy piece in schools.
Now the consumer education piece, I'm fully behind as a profession, really. And, you know, jointly with the regulators and government. We should be really looking at professional financial advice as being one part of that financial wellbeing piece. And, and a healthy mind.
And really should not be that different to having a sports membership or, you know, many firms subsidise gym memberships for one of their and work, you know, benefits, employee benefits, but I don't know how many firms would subsidise someone seeing sort of holistic financial adviser is part of one of their main employee benefits.
So, I think we definitely need to get this into the mainstream conversation, and for financial planning, financial advice, not to be seen as something that only a few do that make it much more part of that generic conversation. And that could be things like, you know, the school's literacy program. It could be things like utilising that school communication piece and that mechanism to encourage parents of schoolchildren to be part of that conversation. But I definitely think there's lots the industry can do to support this. We knew Financial Planning Week in October, which is the Global Certified Financial Planner Initiative.
We offer weeks, a couple of weeks, worth of pro bono sessions, and we advertise that through national newspapers and online. And this year we started trying to use Instagrammers and TikTok stars to communicate that out. But the whole profession needs to get behind these kind of communication mechanisms to really move it forward. But wholeheartedly, I believe this needs to become into a mainstream conversation. And so it is about consumer education but also guiding consumers to where they can find out about credible financial advice.
Thanks, Sally. And Jamie, do you have anything to add?
Yeah, I mean, I agree with what's been said. Absolutely, and I think there's, there's a real role for education at an earlier age. I have to say, I'm wrestling with some of this with my just turned four-year-old son at the moment. I'm trying to explain to him that we do actually have to have money to buy the toys that he demands all the time, and that money doesn't grow on trees, and so on and so forth. And it's perhaps a bit early to talk to him about financial advice.
But I do think it's right on a long journey here in terms of educating people at the right age to get them off on a good start as they start to build their career prospects. I do think that's really important.
I think the other thing to add is that, it does feel sometimes like advice sits outside of the professional sector - in a way that we all know, on this call, that's not true and advisers know that's not true. It's absolutely a profession. But it does feel like people when buying a house, for example, will look to an estate agent or a solicitor without question.
In a way that they don’t with their finances. And I think we need to change that psyche, if you like, in the public's mind that there are events in their lives where they absolutely should seek professional help. And, in doing so – just as they would for such things as buying a house.
So I think there is something there that we need to work on in terms of how we position the value of advice and the need to obtain it.
Now when we asked advisers to share their views on who is responsible for closing the gap – and the majority believe that the onus lies with the regulators and government.
Tim – PIMFA issued a policy paper last year which outlined 12 recommendations it hoped would make it easier for consumers to access professional financial advice.
Within that paper, you called on the government to review the definition of advice – and championed the need to create new lower-cost advice services to support a much wider market.
Can you expand on these points in terms of how that landscape might look please?
Very, very, happy to.
And this all came from work we did with our financial advice members, where we looked at what was causing the most difficulty in their ability to offer local services to individuals with relatively straightforward needs.
And what kept coming back were the full suitability requirements within MIFID II that effectively combined with the definition of advice meant that any personal recommendation has to be, the best possible, the most suitable thing for that individual to do. Which meant that even if you are making a relatively straightforward recommendation, that will certainly help the individual, you might still be taking on more regulatory risks than you are willing to, unless you do that full fact find, unless you do that incredibly detailed, time consuming, expensive work.
And so, as well as looking at the, the advice guidance boundary – so people can say, I certainly remember when looking at FAMR, the financial advice market review, they were looking at rules of thumb and determined that you couldn't even say, if you have children, you should have some life insurance because that was a personal recommendation, that would’ve stepped over the line., And that feels foolish, particularly in the context of talking about education, about helping people understand their needs.
But, beyond that, we need something that sits between guidance and advice.
That enables advisers to, for customers with relatively straightforward needs, recommend something that will be a good outcome, ie better than having not done anything.
When we look at people, the amount that people are under saving, the amount of people that have too much money held in cash - you know, we want them to be taking that money and investing it, but in relatively standard products. And so we can see a situation where a financial adviser would be able to say to someone - you know what if you put a couple of hundred quid a month into an ISA or a pension into this relatively mainstream well-diversified fund, they can recommend that to a customer without the expectation that they will be caught by suitability requirements, enabling them to help those fairly straightforward customers much more easily at a much lower cost.
And therefore also helping to close that gap because we know a large number of the people that could benefit from financial advice, are put off by the cost – and for many of them that's a full fat suitability requirement isn't really needed, but we need to protect that gold standard product.
For people who do need it. People with complex needs, people who are coming up to retirement and making very difficult decisions. Where they really do need a fantastic service that you currently got from our financial adviser, with that level of detail and the level of thought that they put into it.
Sally, would you agree that regularly reform could help to narrow the advice gap?
I mean, I think there's two things, you know, with the Advice Gap, as we've said, is also ensuring that people understand what financial planning is for it to be attractive to going to get it.
I think, as Tim said, creating a simplified offer will enable people, will motivate people, to want to go and get advice, and then the regulator undoubtedly plays a role in that. I wouldn't say, it's just down to the regulator. I think the government has got a role in that. I think us, as professional bodies, and the industry at wide has a role to play in that.
But the regulator could create something which allows a more simplified offer, but still allows firms to differentiate their service to some of those sort of online information providers that are giving some guidance, but not actual advice. So, I think the regulator does need to play a role in helping us produce and offer a lower cost solution that's more simplified to meet, you know, consumers needs while still enabling them to differentiate themselves to those more information providers.
Now moving on to think about the role of technology. On the one hand, there are millions of customers out there who have significant assets to invest and are open to receiving professional advice – but on the other, there simply isn’t enough capacity in the advice community to service such a significant volume of new clients.
Jamie – technology is often pitched as a potential solution to this problem. Can it be used to help scale up the provision of advice services and, if so, what role do you think providers have to play?
Clare, yeah, I think, absolutely. So, it seems obvious that technology is all pervasive and so many areas of people's lives now. And I think it's no exception here in this industry and in, in the advice process.
It feels to me, like, it's a fairly inexorable move that we will continue to improve the way that we can use data and the way we can obtain data and then use that or supply it to advisers for the purposes of what they do. And, I think if we can help advisers focus on the real quality time that they spend with their clients by removing some of the work that's required upfront, that perhaps gets in the way of that. Then, I think that's a really big step forward.
And, I mean, clearly done a lot of that already in the provision of some of the technology that we provide.
So, I think there's more we can do on that, that would remove some of the, the cost and expense and time for advisers in dealing with clients and as I say, focus therefore on that really kind of valuable part of the conversation and the actual advice itself, rather than this sort of data gathering and fact find elements.
And I think just to pick up, I mean, pensions dashboard plays into this. And I know for many advisers they’ll roll their eyes on hearing this because it's been a number of years in the making. But we are now, I think, just within about 12 months, within sort of touching distance of seeing the first dashboards go live in the course of 2023. And it should be something that is really helpful. So particularly clearly around pensions initially.
But something which should allow our clients, or their advisers on their behalf, to find and identify and value pensions; in a way that previously perhaps clients were turning up with Lever Arch files or even plastic bags full of papers that needed to be worked through.
And in some cases, even missing pots of money that previously had for jobs that they occupied for a small period of time, for example.
So I do think, you know, dashboard is actually very good way of thinking about how we can really get data working harder in the interests of advisers. And if we look just a little bit beyond that, you've got to imagine then that we move to a position of open finance, so not just pensions, but, you know, joining up people's capability to see what they have online in terms of banking and other products for that matter.
So It feels like that's a move in the right direction. That will really help.
That’s great Jamie, thank you.
I think what’s been clear from the research we’ve carried out is that, while some advisers can see the value of automating key parts of the advice process, very few believe that self-serve technology, such as robo advice, can provide a solution to the problem on its own.
Presumably you would agree with this – but what about the role technology can play in terms of connecting more customers with advice?
For example, from our initial research into the advice gap, around a third of all non-advised consumers said they would find advice more appealing if they could do everything digitally.
Do you think this an area where advisers perhaps need to adapt if they’re to meet changes in customer expectation and behaviour?
I'll ask that question to Tim, first of all.
Yes, I think, I think we do have to adapt. My team hear me say this a lot. But every single industry who has said that they are different and technology won’t revolutionise how they operate has been wrong.
And we have to accept that this is coming for our industry. But there is a critical thing that technology is bad at – and that is emotional intelligence and human engagement. And that is at the heart of our industry.
So what you need to think about with technology is, how can you use technology in a way that maximises your ability to do the thing that’s really, really valuable? And that’s being able to connect with your client and with your customer.
And so most customers now are used to being able to check their bank statement on an app, to do simple transactions, to be able to submit documents. And things like open banking and making that, that even easier. I had to update my mortgage a few months ago, and instead of submitting my bank statements, as you would have done previously, I gave my mortgage provider permission to use the open banking network to access them directly. Now customers will get more and more used to things like that. And they will expect those points of friction to be removed.
So, my advice, I think my advice to advice is, look at how you can use technology to remove those pain points for customers. And look at how you can use technology so you are spending your time on the things that only you can do, and at the heart of that is going to be your customer relationships.
Thanks, Tim. And same question for Sally.
I mean, I echo what Tim has just said, there are certain parts, you know, having been in planning myself. There are certain parts of that process, just cannot be replaced by anything that’s digital because that one moment when, you know the husband and wife look at each other and you realise that they haven't quite understood what you've said that you need to reiterate that again. Or when you're asking whether they believe they've gotten enough emergency cash, and you ask a few more probing questions, and you will come to the realisation that potentially you haven’t.
So, I think there, I think this is where, you know, planning is so built on relationships, some of this would be incredibly difficult to digitalise. Having said that, our client base and the future client base - the Gen Zers does expect and want to communicate through social media and digital technology. So, we're going to have to move towards that. And, I echo Tim’s points really, that there will be parts of the process that, that we can modify and that will actually improve the process. But there are certain parts that, that that won't be able, you know, we won't be able to do.
And I want to have a think about that in a bit more detail. What about the threats that new technology might pose to the advice market?
These days a lot of young adults will turn to social media platforms such as TikTok or YouTube to get information about managing their money.
Do you think this represents an opportunity for advisers to broaden their reach – and what about managing the potential risks these new channels might pose to consumers?
Sally can I ask you that first?
Yeah, I mean, I think this is something we're going to have to embrace, because young adults… TikTok, about 60% of users of TikTok, are the next generation.
And as you said, so many of them use them to get information about money. And actually some of some of those platforms are giving really good basic information about ISAs or about budgeting or about that very preliminary basic sort of financial capability advice.
In terms of an opportunity for advisers, of course, some advisers are starting to do their own sort of webinars and put them onto social media platform, and, and so I think there is an opportunity here. But but we need to work with these new emerging talents on TikTok and YouTube to ensure that they are providing the right information. And otherwise, some of that misinformation out there could, you know, prove to be a real potential risk to the consumer.
Thanks, Sally. And same question for you, Jamie.
Yeah, it's a really interesting one.
You know, it's funny when we talk about misinformation or disinformation as something new. And it's clearly not I mean, there's always been this sort of pub conversation where people walk away with, you know, a complete misunderstanding of the truth, but they were speaking to two people.
And so between them, those three people gathered the wrong opinion from that conversation. Now, social media kind of amplifies that.
And instead of speaking to two people, you suddenly find that this two million people that you found with a similar view or adopt a similar perspective on things, and that's part of the problem. It's like safety in numbers. People then start to listen to only the people that take that view. So misinformation is really problematic and more problematic, but it's not new. It's just the medium as kind of amplify that message.
And I think, you know, I think we all agree there is work to do on managing that. You know, and I won't get into the debate about exactly whose responsibility it is. But clearly the platforms that are hosting this information have work to do. And regulation probably needs to move on in terms of how we were trying to, you know, try and tidy up some of what people are reading and understanding where it was misinformed.
So I think there is something about raising that standard. Undoubtedly, but let's not, you know, let's not pretend, you know, whilst it might be a threat, technology is a huge enabler and a huge opportunity.
And you think about - I know it's almost a cliché to talk about people and generations, but certainly when I look through my generation, so my octogenarian mother is really struggling to come to terms with, you know, how to use things like online banking, And probably always will because she's just a bit scared. It's not something she's grown up with, whereas, I look down the way to my four year old son again, and he won't really know anything else. He’s growing up with technology, it’s the way that you do everything, and won't know how it was before. And, you know, generations beyond him, similarly, we grew up with a new wave of technology. So it's definitely an enabler.
It's a way of doing things, but I think we, we just need to think about how that works through in terms different age groups and people's different vulnerability or aptitude for using it.
Thanks, Jamie. And Tim, do you have anything else to add?
Yeah, I think that the key thing is, it absolutely is an opportunity as long as there is a level playing field.
And what this means, and I know a number of our members have been concerned about this, both firms and individuals saying things that they feel they would never get away with in terms of the rules from the FCA.
And then also the risk the out and out scammers that we know are operating on technology and particularly Instagram and Facebook, are undermining people's faith in financial advice in general.
And so we were very proud to be part of a coalition of financial services firms, consumer groups, other trade associations that we convinced the government to amend the online harms bill, which was originally looking at radicalisation, grooming and issues like that, to include investment fraud so that individuals who are using these platforms to commit fraud.
Those platforms will be how to account for dealing with that harm that's happening on their platforms. And this will be incredibly important to restoring the faith in the advice community for individuals who feel that they have been let down by people pretending to be part of our sector, so making sure those rules apply to everyone is part of how the genuine advice sector can then use those platforms for, for engagement.
That's great. Thanks, Tim.
Now finally, another way to increase the capacity of the advice market would of course be to grow the size of the adviser community. And in fact, we know from our research that there’s a sizeable population of advisers who believe we must encourage more people to enter their profession.
What role can our industry play in helping to promote a career in the world of professional advice – or even create a pathway for those who might be interested?
And that's a question for all of you to think about, but I'll start with Jamie.
It's an interesting one, and it's a real conundrum, because there are groups of like-minded people who are trying to promote this, very subject in terms of the sort of next generation of planners and advisers, if you like. And I think, you know, that's very worthwhile.
Because it's quite difficult to put your finger on it. What I'm probably less clear on is the extent to which the problem of growing the adviser community is.
Because advisers aren’t typically expanding the business and recruiting, and people aren't leaving that, or whether there is simply a lack of people coming through and showing interest. And maybe it's a mixture of both. But, maybe just to, to offer up one point, something I mentioned earlier was the idea of making this more of a recognised profession.
As I say, we know it is a profession. Absolutely.
But, whether that's clear to people who are going through the later stages of education or into university, look at it in the same way as they might, you know, a law degree, you're going into, to medicine, you know, is advice something that they consider a profession that they'd really like to aspire to. And I don't know the answer to that.
I think there's more work we probably need to do in that area, and if we are to expand the number of people who come into the profession.
Thanks, Jamie. And same question for Tim.
So, I think what the evidence suggests, and this is true to a certain degree across financial services as a whole, is, the best new graduates do not see financial services as an attractive career anymore.
You know they're looking at tech, and they're looking organisations which they feel have more social purpose. Now, obviously, we all know that we are a profession dedicated to helping people - often helping people when they're in challenging circumstances, when they have particularly complex needs. And I think one of the things that will be needed to get that next generation in is to have a look at our culture. So, are we welcoming, are we diverse, are we inclusive, and are we proud of the good that we do as a sector, because increasingly, young people want to work for companies that they feel have a social purpose.
And our industry very clearly does, but we don't tend to talk about it. We don't tend to perhaps be as proud of it as as we should do. I think, on on equality and diversity, which comes up time and time again for young people as being absolutely critical. I think we all know that we have more to do.
But what was really heartening is last year PIMFA had our first equality and diversity awards and the stories from the sector that was showing what could be done, showing what best practices were incredibly uplifting.
I think if we grab that challenge to make sure we have a, a welcoming culture, making sure where we're reflecting the community we serve, that will, in turn pay dividends. Not only in terms of helping us access the widest possible group of customers, but also encouraging more and more young people to see us as a profession of choice.
That's great, Tim. Thank you. And Sally.
I mean, it's interesting one, because I think all professional bodies that are in this space are doing work with universities. But interestingly, when you look at how people enter the advising or planning career pathway, often it's not from graduates, lots of people come in where it's a second or third job role, and they almost accidentally fall into financial planning and then grow, grow from there. So often it can be a second career for someone, rather than just promoting it to the graduate population.
But, I think it comes back to almost back to sort of the advice gap point really. It’s whether people really understand what financial planning is and, therefore, what a career in financial planning would be like.
And and so I think those two things really do go hand in hand, but undoubtedly the industry can do more to support people when they want to come into financial planning and promote financial planning to school leavers, graduates and potentially apprenticeships to encourage them into the advising community.
Thank you, Sally.
I'd just like to thank my guests for their time today. If you'd like to find out more about some of the issues we've discussed, please visit our website at adviser.royallondon.com/futureofadvice.
The advice gap offers both significant challenges and opportunities for our industry.
Through our research paper, Exploring the advice gap, we'll show you exactly why so many people miss out on the benefits of professional financial advice - and the steps our industry must take in order to help them.