The new Consumer Duty regulations take effect from July 31st this year ushering in new rules across the financial services sector. Banks, insurance companies, fund managers, advisers and planners must prove they are doing their best for their customers. Having businesses put clients first, which in my experience most do, makes perfect sense. But I believe the bigger issue facing the regulator is the fact that most people don’t receive financial advice.
Over the past ten years the financial planning community has transformed itself from a sales industry into a profession. Qualifications are now mandatory and increasing numbers of advisers and staff are chasing ever higher levels of professional recognition and technical skill. Now planners and clients work together to select the type of advice and ongoing support required, and agree appropriate fees.
We know from research and surveys that people who pay for financial advice are better off as a result, and not just in terms of financial returns. The key responses are:
- People feel more confident when facing important financial decisions.
- They’ve spent time being educated by their advisers.
- When market uncertainty occurs, as they know it will, they are prepared.
- They know just to look, and not leap.
- They understand their options, and the implications of those choices.
- They have a clear purpose woven into their financial plans.
So, given the evidence above, why do so many decide against seeking a financial adviser?
Some will think that financial planning is the preserve of the rich and famous, and therefore too expensive. Not true. The new Consumer Duty regulations require financial planning firms to demonstrate good value for money. The simple truth is people associate value with price, but to quote Warren Buffett, “Price is what you pay, value is what you get.” Price is easy to quantify, it’s a number, but how do you put a number on value?
The only real way of knowing what clients value is to ask them. Which is exactly what recent studies from Boring Money and the Lang Cat have done. This year’s Lang Cat paper on the advice gap showed overall satisfaction with financial advice has improved over the past few years.
Our thoughts on how to close the advice gap start with bringing financial education into the classroom. We already work with schools, explaining basic financial skills such as budgeting, and saving. One of the aims for our future charitable trust is to support financial education and mentoring across schools and colleges. We know this support is badly needed. Research from Compare the Market and MyBnk in conjunction with the Centre of Economics and Business Research revealed that less than half of young adults are capable of taking basic financial decisions. Just over 60% of young adults cannot recall receiving any financial education at school. Most feel ill equipped to make informed decisions and have little understanding of the implications of their choices.
Wealth and Financial planning is not the privileged domain of the wealthy, it is a learning environment where people can lay the foundations for achieving their goals, plans and purpose for their money.
As with most journeys, they work better with expert guides. Yes, it adds cost, but guides enrich the experience, showing you all the things and places, you wouldn’t have seen without them!
One of our key skills is helping clients and their families develop financial awareness, building confidence allowing them to make wise, informed, decisions with their money. We want to ensure client families where parents have taken time to engage with an adviser can pass on their experience, and knowledge, as well as their assets, to the next generation.
Financial planning is a resilient profession. The future looks promising. We trust that schools and colleges will embrace financial education, helping more people see the value in financial literacy and planning, and to anticipate a future with more confidence. We intend to do our part to educate, coach and encourage the next generation towards a better understanding and appreciation of the financial opportunities that lie ahead.