How big a difference is there between guidance and full financial advice?
Guidance is better than nothing and can help inform, educate and raise awareness. But it is nowhere near as effective in supporting individuals with real-life financial challenges as financial advice. It is time for the industry, regulators and government to fully acknowledge the shortcomings of guidance.
For example, take an individual with £5,000 of credit card debt, no rainy day fund and they get a £500 bonus. If they look into investing that money, guidance will lead them towards making an investment when it is clearly the wrong thing for that individual to do. If a financial adviser advised them to invest in these circumstances they would be guilty of giving unsuitable advice and could even be struck off. Yet the industry is creating a range of solutions to enable that person to invest that £500.
Why is it important to make financial advice available to all, regardless of how well off they are?
Financial advice is arguably more valuable to people on low incomes than it is to those with lots of assets, and it is certainly the case from a financial wellbeing perspective. But the commercial reality is that current industry business models are not structured to be able to make a profit out of low income groups.
I don’t blame financial advisers for not taking on customers they can’t make a profit on. But the industry as a whole needs to accept that the non-advised guidance structures it is creating are sub-optimal in comparison to advice. We should not pretend that poorer people have simpler lives and don’t need advice, because the reality is that getting their finances wrong can have far greater implications for them.
Why are so few organisations succeeding in delivering financial advice to people on low and middle incomes?
Delivering advice to low and middle income groups is not a task to be taken on lightly, as an add-on to a product proposition, or a side project of an advice business. It needs a thought-through business model that can be sustainable and profitable over the long term. A low cost advice business also needs to be structured in a way that acknowledges that for most people, actually investing right now will not be the best way forward, because most people have debts or no savings.
Our OpenMoney consumer advice business has been delivering financial advice to low income individuals for almost four years. In that time we have given 75,000 recommendations to customers, and for 68 per cent of these the advice does not involve making an investment. Through WorkLife we are now bringing this approach to more people through the workplace, where financial advice can be delivered as a valuable employee benefit.
Can the workplace be an environment for tackling financial illiteracy?
Definitely. Yes it is important that schools increase their focus on personal finances. But this will do nothing to help the tens of millions of people already in need of advice who aren’t getting it. Financial illiteracy is a huge problem in the UK, but innovative workplace solutions have the power to get people excited about the prospect of managing their finances for the first time. The workplace presents an opportunity to achieve a step-change in financial literacy for millions, provided they can be connected with their finances through engaging tools, advice and other support.
How can advisers help SME employers give their staff the sorts of benefits offered by big companies?
Regardless of their size, many employers want to give their staff the richest suite of benefits possible. But they also want the process to be easy. That’s why we have invested in a platform that is a one-stop-shop for employers to access all the benefits they need, helping even the smallest employer to offer a big-employer benefits programme.
Financial advice for all should be a core benefit for any employer wanting to support the health and wellbeing of their staff. But the aim is to ensure people are covered in every aspect of their life, which is why we have also included access to benefits such as the NHS- approved Thrive mental health support app, a virtual GP service and lots of discounts to make employees’ pay go further.
The workplace is also the most cost-effective avenue for accessing protection benefits such as life, income protection and critical illness cover, as well as access to investment products.
Channelling all these benefits through a single platform gives the adviser a simple way to deliver a consultancy-driven, compelling suite of benefits that can support employee wellbeing, engagement, motivation and productivity.