Trust is the greatest obstacle to bridging the advice gap

Mike Barrett, consulting director, The Lang Cat, said that the research had identified a number of advice gaps – or barriers that prevent people from taking action on their financial future – which he summarised as: affordability; awareness; confidence; and financial literacy.

The final gap is, naturally, cost, which previous research by the Citizen’s Advice Bureau had identified as a cohort for whom no amount of marketing, communication, access or assistance would help, as their income always exceeds their outgoings. 

Speaking at the latest Pensions Playpen coffee morning, Barrett said research from Lang Cat Financial showed that 11% of adults in Great Britain have paid for financial advice in the last two years.

The majority of people (53%) who paid for advice are over 55 years of age, followed by those 45 to 54 (12%) 35 to 44 (15%) and 25 to 34 (13%).

Of this group, 60% receive ongoing advice while 38% have received one off advice – statistics which Barrett says correlate with data from the Financial Conduct Authority (FCA).

Of those who receive advice, 88% consider it to have represented good or very good value for money. 

But because of the various types of gap, that doesn’t mean that 89% is a homogeneous group that can be targeted by the advisory industry.  

“However, the research shows that there are more realistically addressable segments for the advice sector to look at,” said Barrett. 

“In particular, there were 3.1 million who are not paying for advice, but who could do so. They are in the right of wealth bracket, but there is a problem with trust.”

This 16% of respondents said they are fairly or very likely to pay for advice in the future. But almost four in every 10 (38%) said that a lack of trust is the main barrier, followed by 37% if they were convinced it would save them money.

Almost one quarter (24%) wanted to be sure they can find the right adviser, while 20% said that advice costs too much. As many as 29% said they would never pay for financial advice. 

AE part of everyday financial life 

Slightly more than half felt they were worse off as a result of the cost of living crisis, while 29% felt their financial position was about the same as three years ago. Very few felt they were slightly better off (12%) or considerably better off (6%). 

Despite so many experiencing a worsening of their financial position, workplace pensions have not been a source of domestic savings for the vast majority of those surveyed. 

While the biggest cohorts said nothing had changed, only 5% said it had decreased their typical spend on pensions (2% a little, 3% a lot). 

Tom McPhail, director of public affairs at Lang Cat, said: “It’s illustrative of the stickiness and the efficacy of the auto enrolment programme, and those defaults, that it appears that now it’s baked in as part of our expenditure.

“We saw coverage earlier in the pandemic of fears that pensions were going to be a casualty of first the pandemic and then at the cost of living crisis. We’re not finding that and from a policymaker’s point of view, this should be a reassuring message.” 

The advisory market is well aware of these gaps – and the issue of trust – said Barrett, but it cannot deal with it alone. 

The vast majority of those who do not receive any financial advice are simply not commercially viable for most advisers and the concept of ‘core advice’ has been met with little enthusiasm by the advisory community. 

While trust is well identified, there remains widespread misunderstanding about the difference between advice and guidance. 

“One of my favourite pieces of FCA research,” said Barrett, “ is that there is a segment of the population that believes that guidance is actually a higher bar than advice and that if someone gives you advice, it is less personalised.

“That is a problem, amplified by the fact that people actually do seek guidance.”