Advice Investments Wealth management

Can banks complete the advice gap puzzle?


Andy Thompson

Chief Executive Officer, Quilter Financial Planning

On a regular basis we are inundated with studies and figures highlighting that financial resilience in the UK leaves a lot to be desired. This summer was no exception as government figures showed British households spent around £900 more on average than they received in income during 2017, pushing their finances into deficit for the first time since the credit boom of the 1980s.

That’s not an amount that can be found down the back of the sofa and the ONS says families are resorting to borrowing money and running down their savings as the total figure for household debt reaches an astonishing £25bn.

This is a population screaming out for help with their finances. Initiatives such as Financial Planning Week helps build awareness of the importance of financial planning sessions and how they can boost overall financial well-being.

However, demonstrating the importance of advice is only part of the problem. The advice gap is also driven by a substantial lack of supply.

A decade of disruptive regulation and legislation has led to some advice firms, particularly, banks, to exit the industry. The rush for the door meant the number of financial advisers fell a jaw-dropping 23% from the 2011 to the end of 2012, according to figures from APFA.

Just six years later and advisers have again been faced with substantial regulatory change, MiFiD II. This latest set of regulation has added substantially to advisers’ workload, making economies of scale in the sector even more important. Meanwhile, clients will have it laid out for them in pounds and pence figures how much they are paying for advice, platforms and pensions. Advisers, committed to delivering value for money, are likely to take on fewer, wealthier clients, widening the advice gap further still.  

Banking on a turning point

The significant lack of supply and the growing demand means the financial advice industry is ripe for more participants. It’s therefore not surprising that Lloyds recently revealed they are looking to reintroduce financial planning into their branches and other banks have made similar murmurings.

The majority of the population has a bank account and they interact with their bank on a regular basis for their basic spending and saving. This interaction offers them an opportunity to encourage and provide advice particularly for those who are in the early stages of accumulating wealth.

When it comes to financial advice, trust is of substantial value to consumers. Our research with Consumer Intelligence has identified three the top three factors customers’ consider when they are considering an advisers’ value: trust, personalised advice and value for money. Banks are well positioned to deliver this powerful trio.

Other advice firms, such as Intrinsic, are unlikely to be concerned as there is more than enough room in the market and a rising tide lifts all ships. Banks are well placed to provide advice initially for those in mass affluent space, helping them to grow their wealth. These customers may then develop more complex financial needs and seek a financial adviser. Indeed, research has shown that those who take advice are likely to continue to take advice in the future.

Still, banks’ past history with advice is not all rosy and the majority faced steep fines for unsuitable advice. The industry is a different place now, but all providers of financial advice need to remember that access to advice is only one piece of the advice gap puzzle. Advisers also need to build trust and provide value for money to be successful.