‘We want to build a robust advice industry that is fit for the future’

In the past two decades, the UK has expe­ri­enced sig­nif­i­cant social and demo­graph­ic changes that mean peo­ple are faced with more moments when they have to make impor­tant finan­cial deci­sions. 

Pre­vi­ous­ly, the biggest finan­cial deci­sions typ­i­cal­ly revolved around get­ting mar­ried, buy­ing a home or hav­ing a fam­i­ly. But the impact of an age­ing pop­u­la­tion, changes to gov­ern­ment pol­i­cy and new work­ing pat­terns means many of the old cer­tain­ties have have dis­ap­peared.

This is why it’s vital that as many peo­ple as pos­si­ble can access pro­fes­sion­al advice. A wealth of research shows peo­ple who have engaged with the advice sec­tor are sig­nif­i­cant­ly bet­ter off in retire­ment than those who have not. 

Peo­ple who receive advice feel more con­fi­dent about their finances over­all and have increased finan­cial and men­tal well­be­ing. Research by Open Mon­ey shows the vast major­i­ty (86 per cent) of those who have tak­en pro­fes­sion­al advice had a pos­i­tive expe­ri­ence.

Despite this, most peo­ple do not engage with pro­fes­sion­al advice. Open Money’s research also found just 10 per cent of respon­dents had tak­en paid-for advice, while 79 per cent of those who had not, had no inten­tion of doing so. For many, the cost of advice is a bar­ri­er, but it is not the only one. The lack of uptake is also the result of a lack of aware­ness of the ben­e­fits and a lack of trust.

Advice can be expen­sive, in part because costs to the indus­try have risen over the past 20 years. Reg­u­la­tions designed to pro­fes­sion­alise the indus­try and pro­tect con­sumers, while ben­e­fi­cial have had the unfore­seen con­se­quence of cre­at­ing an “advice gap”. 

Mean­while, scan­dals have con­tributed to a gen­er­al lack of trust and tech­nol­o­gy has led many peo­ple to take finan­cial deci­sions with­out nec­es­sar­i­ly being ful­ly aware of the risks, or in the worst cas­es enabled crim­i­nals to defraud unsus­pect­ing vic­tims.

Here at the Per­son­al Invest­ment Man­age­ment and Finan­cial Advice Asso­ci­a­tion (PIMFA), we believe that every­one who wants to receive pro­fes­sion­al advice should be able to do so. 

We know from research by Roy­al Lon­don that those least like­ly to access advice due to the cost are the peo­ple most like­ly to ben­e­fit from it. This is why we are work­ing with reg­u­la­tor the Finan­cial Con­duct Author­i­ty (FCA), and oth­ers, on the cre­ation of a sim­pli­fied low-cost advice mod­el that would make advice more acces­si­ble to more peo­ple. 

We want the FCA to work with us to remove, per­ma­nent­ly, those bad actors who rely on the rest of the indus­try to com­pen­sate the clients they have failed through the Finan­cial Ser­vices Com­pen­sa­tion Scheme. Doing so would reduce the bur­den on the scheme and, there­fore, reduce the sin­gle biggest cost pres­sure our indus­try faces. 

In addi­tion, we want peo­ple to feel safe from fraud­sters online, which is why we are cam­paign­ing for finan­cial harm to be includ­ed in the government’s Online Safe­ty Bill. 

PIMFA also wants to resolve how advice is defined and charged. Cur­rent­ly, the def­i­n­i­tion of advice is derived from Euro­pean leg­is­la­tion, but now we have left the Euro­pean Union there is an oppor­tu­ni­ty to pro­vide a clear­er def­i­n­i­tion that works for the UK advice indus­try and a rule­book that enables flex­i­ble advice mod­els using tech­nol­o­gy. Redefin­ing advice would also allow for the cre­ation of a mod­el where charges are tiered based on the com­plex­i­ty of the advice offered. 

More­over, we need the gov­ern­ment to work with us to improve finan­cial lit­er­a­cy in the UK and encour­age a sav­ings and invest­ment cul­ture. This can only be achieved by teach­ing younger gen­er­a­tions how to man­age their finances, by encour­ag­ing peo­ple to invest for the long term at an ear­li­er age and by pro­mot­ing the val­ue of advice. 

PIMFA and our mem­bers want to build a robust advice indus­try that is fit for the future and acces­si­ble across soci­ety: a mar­ket that allows advis­ers to thrive, devel­op and inno­vate, and pro­vides con­sumers with pro­fes­sion­al and afford­able advice. Ulti­mate­ly, this will be a mar­ket that works well for the UK econ­o­my, not only by increas­ing lev­els of sav­ings and invest­ments, but by improv­ing the nation’s finan­cial and men­tal well­be­ing too.