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Mind the advice gap, says the UK regulator. This phrase represents the growing chasm between those who get financial advice and those who want it.
In the past two years only 11 per cent of adults in Great Britain paid for advice, according to new research from the Lang Cat consultancy. The data suggests it is a big issue, with trust cited as the barrier blocking 3.12mn people from taking advice.
But could calling the problem an “advice gap” be a mistake? First, it makes financial firms care deeply about the boundary between advice, which has regulatory implications, and guidance, which doesn’t. The public doesn’t care about these semantics. People just want help.
The second, bigger problem, is that it puts firms under pressure to find ways to introduce more advice.
Most people simply don’t have enough money to qualify as a client of an independent financial adviser (IFA). Usually you need at least £250,000, with some firms also catering for those with £100,000 or more. But 37 per cent of the population have less than £25,000 in total wealth and assets, and 24 per cent have less than £10,000, says the Lang Cat. How to give these people advice is what gives regulators sleepless nights.
While the gap has always existed, it widened after the Retail Distribution Review, which 10 years ago reformed the way retail consumers were offered, paid for and received investment advice.
Everyone can see it is madness to charge someone with £30,000 sitting in the bank a fee of £2,000 for investment advice. Before RDR, this type of thing, or worse, happened due to hidden commissions and salespeople disguised as advisers. But today’s low-cost advice services with transparent charging structures have also struggled to sign up customers. The biggest shock was Vanguard closing its UK financial planning arm this year, less than two years after the service launched.
IFAs themselves aren’t going to fill the gap. The sector is profitable and advisers are not struggling to attract clients. And as Mike Barrett of consultants the Lang Cat points out: “Advisers are not paid to deliver social policy. They are running businesses.” Plus, many report struggles to recruit more advisers — there simply aren’t enough people trained up the requisite qualifications.
We have seen multiple attempts in the past decade to close the gap using technology. Some experts even wrote papers with titles like “Will automated advice kill the traditional adviser?” But it didn’t happen. Yes, UK investors can access a long list of auto-invest robo-advisers, including Nutmeg, Wealthify, Moneybox and Moneyfarm, but these firms have had to navigate thorny issues such as failing to deliver returns, or failing to secure enough customers. They’ve only made baby steps in attracting the 89 per cent not taking advice.
As Amanda Mayes, director at Magus Wealth, says: “We’ve talked about the advice gap for 15 years now and nothing has been done about it.”
Enter the financial coaches, mentors and wellbeing experts. These people don’t give customers access to financial products, but instead help with thought processes, decision making and, ultimately, confidence.
Some independent players have been operating for years, such as Wise Monkey Financial Coaching. Founded by Simonne Gnessen in 2002 after she had worked as a fee-based independent financial adviser for 10 years, the firm has also trained more than 170 people to become coaches, which it says meets a real, growing need.
Financial coaching is an unregulated sector, but it’s growing fast, with Octopus Group announcing a £50mn investment last week in its Octopus Money coaching business. Meanwhile, we’re also seeing innovative solutions such as Claro Wellbeing offering accessible financial education to frontline and deskless workers over WhatsApp.
Other new firms offering financial coaching include Nudge, Otto Finance, Bippit, MyEva and Maji. But they are mostly offering it through employers who are concerned about financial worries impacting staff performance. In a cost of living crisis this is a big issue, with financial issues connected to mental health.
I think this momentum shows the advice gap itself is a misnomer. What we have instead is a confidence gap that these services are neatly filling.
Ruth Handcock, chief executive of Octopus Money, says: “Most people are thoroughly confused about finances. They feel stupid and feel like they are losing. They make emotional statements.
“There are lots of front doors to walk through, so most people don’t open any of the doors. Robo advice has tried to fill the gap. I think it has failed because of one fundamental thing — people aren’t confident enough to take the jump and press invest because they haven’t spoken to someone.”
Through the process of being asked insightful questions, financial coaching helps people develop a better relationship with money, feel calmer and more in control, and build habits that can help them achieve their financial goals. A coach can also tell you if you actually need advice or can do it by yourself.
The charges can be anything from £60 to £150 an hour, with some services requiring a minimum two-hour session to sort a plan.
But the problem is that pretty much anyone can advertise themselves as a financial coach. Without an employer to vet one for you, it may not be clear what’s on offer.
Also “financial coach” is a bit of a Wild West on social media — I found 60 financial coach accounts on Instagram and a bigger number on Twitter. But there are plenty of very loud warning bells ringing. “Being broke is economic, being poor is a disabling frame of mind,” is a less than inspiring quote by a top-trending financial coach on Twitter, while “crypto enthusiast” was another red flag for me.
There are plenty of terrible videos from charlatans posing as financial coaches on TikTok if you want to waste half an hour of your life, though you might end up spitting out your coffee.
The key is to look for accreditation. The London Institute of Banking and Finance offers some, and is working with the likes of Octopus and Claro on training programmes that take about 6-8 weeks.
You may prefer someone with more experience. There are plenty of examples of former IFAs turning to coaching in later life. Some are doing this as a way “giving back” to the less wealthy, after a long career serving the 1 per cent. The VouchedFor website is a good place to find one: it allows you to search for financial coaches in your area and highlights those who have qualified as IFAs. That way, you can find a financial coach who has already won their regulated stripes.
Moira O’Neill is a freelance money and investment writer. Twitter: @MoiraONeill, Instagram @MoiraOnMoney, email: moira.o’neill@ft.com
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