The industry’s fear of taking responsibility for financial advice is leaving employees taking non-advised guidance journeys that are often leading them to the wrong destination. This was the subject of debate at a recent Corporate Adviser round table on bridging the financial advice gap.
Virtually all of the financial products and most of the financial wellbeing solutions provided through the workplace currently only offer non-regulated guidance.
But Anthony Morrow, chief executive of OpenMoney says there is a danger that guidance is short-changing many employees, particularly those who are likely to be in financial difficulties.
He says: “The direction of travel has become one way in the industry in recent years. The ability to access advice has been becoming harder and harder, and it has got less and less affordable.”
In order to address this challenge, OpenMoney purchased Jargon Free Benefits, 18 months ago. This is a small benefits platform, which has now been rebranded WorkLife by OpenMoney. The main objective of this business is to promote financial advice in the workplace to all staff, regardless of income group.
Morrow says he is concerned that non-regulated guidance is providing a “second-rate” service in many cases,leading to outcomes that are plain wrong in some situations.
He says: “At the moment you have people who don’t have a lot of money, and by definition don’t have much experience of investment products or financial services. As a result they may not be able to make the informed decisions that are being expected of them.”
He pointed out that failing to make a decision at all, or making the wrong decision, can have a catastrophic effect on individuals’ financial circumstances — but people in low and middle income groups rarely have access to the sort of independent advice that might help them get their finances on a firmer footing.
Where guidance is wrong
As an example of this, Morrow said around 68 per cent of those who have come to OpenMoney for advice, through their non-workplace channel, do not ultimately buy a regulated product such as a pension or investment product. This is because many have debts and don’t have cash savings, so are advised to look at these aspects of their finances first.
“They are not customers who should be investing, but they want to invest. However the need to have the foundations in place first.”
But as he points out individuals with high debt on credit cards who went through a guided investment service could end up putting money into an Isa or other investment product, when an adviser would have recommended clearing debt.
Morrow said the workplace offers an opportunity to offer this holistic approach to financial wellbeing, with advice offered more cost-effectively through this channel.
Several delegates attending the round-table said there were roadblocks to be overcome before this kind of financial advice could be made more widely available.
One of the main stumbling blocks was the continued reluctance from employers to engage with this issue. Michael Royce, senior policy and propositions manager at the Money and Pensions Service said employers are concerned about the regulatory consequences of facilitating financial advice.
He said: “There are concerns particularly from smaller employers that they are edging towards some regulatory boundary and if they tip over that boundary they’re going to be liable for any service benefit operation they offer their employees.”
He said such views are commonplace across the industry, but says it isimportant to try to counter this, in order to put in place a framework that helps move from guidance to advice as seamlessly as possible. He added the workplace could be an effective channel to help meet the different financial needs of a wide range of people.
Consultants attending this event agreed with Royce’s assessment and said they encountered this reluctance on a day-to-day basis.
Cavendish Ware associate director Roy McLoughlin described “almost a paranoia” within HR departments, while Howden Employee Benefits & Wellbeing head of benefits strategy Steve Herbert said: “The truth is that employers, large and small, are nervous about recommending firms that offer financial advice.”
As he pointed out, to deliver affordable advice via the workplace there needs to be support from employers, and a willingness to fund at least part of this advice. “If we can get this right and do it in an affordable way it has real potential. But it’s a big ask from where we are now. Given the current crisis I don’t think employers are going to be focused on this at all.”
But Herbert points out that this isn’t the only hurdle. On the other side of the coin is a reluctance among employees to engage with these issues, particularly if it involves paying upfront for this advice.
Consultants commented that there are a number of schemes, such as the pension advice allowance, designed to be a cost-effective way for individuals to access independent advice.
Advice tax breaks
This for example allows people to use up to £500 from their pension funds to pay for advice, which can prove more tax-efficient that paying out of a taxed salary. This scheme is often promoted to those approaching retirement as a way of accessing advice about drawdown and other options, but take-up has been low.
McLoughlin says regardless of age many people simply don’t want to pay for financial advice: “Often we’re talking to people in their 20s and 30s about savings and pensions. The idea of paying for financial advice is a completely new concept for them.
“Even if the employer pays for an initial surgery and the feedback from employees is that this has been useful, we tend to hit a brick wall if they have to pay for a more
in-depth follow up.”
Benefiz founder and director Tim Gillingham agreed that there are potential stumbling blocks with both employers and employees. One of the main issues he says is that many employers are still largely ignorant of the financial problems their employees face.
“The fact is many employers just aren’t aware of the financial needs of their employees, so we are talking about a problem that really isn’t on their radar at the moment.”
This he says is part of the consultant’s job, to raise this issue, point out what debt levels are in their local area, and discuss how financial problems can spill into mental health and physical health problems, and can affect issues such as productivity and absence in the workplace.
This isn’t the only problem though. Damian Stancombe, head of health and wealth at Barnett Waddingham pointed out that employees may be less likely to engage with some of these options.
He said: “Employees may be reluctant to discuss issues like credit card debt. There is often a trust issue, even if they are reassured helplines or advisers are independent. There’s a fear this information will get back to the employer.”
As a result he says accessing financial advice through the workplace may not be a “natural solution”.
Gillingham said that consultancies like Benefiz are not authorised to provide financial advice. However, he sees a role for the firm in providing a facility or gateway to address this issue. Consultants can make suitable recommendations and provide more tailored options to suit different clients, depending on their needs, he says.
If employers have EAPs then there is the potential to monitor feedback on calls made, he says. “If financial wellbeing is one of the biggest areas where people are seeking help, then there is the potential to plug in a solution to address this issue,” he says.
This MI can help highlight the extent of these problems for employers. Steve Bee, director of WorkLife by OpenMoney acknowledged that there are historic barriers to providing financial advice via the workplace. But he points out that there has been “something of a revolution” over the past decade with the introduction of auto-enrolment.
“This has effectively shifted the burden of state provision onto employers. Even the smallest employers now offer these kind of financial products and employee benefits. Workplace benefit platforms are being adopted by firms that traditionally wouldn’t have had them, so it seems sensible to think about introducing financial planning tools to this mix.
“This is an opportunity to help people take control of their finances. To date, much of the discussion around financial education has been focused on schools. But the workplace seems a far more effective way of providing real education and getting these tools into the hands of people who need them, whether they are in debt, or struggling with their finances.
“There is a lot of talk about wellbeing in the workplace, but all the online yoga classes and mindfulness apps are not going to help people get out of debt. We’ve got a product here that might do the trick and really make a different to their overall wellbeing.”
The value of advice
There was widespread agreement that if these hurdles could be overcome, access to financial advice through the workplace had the potential to be a valued employee benefit. McLoughlin points out that it is likely to be more appreciated than standard ‘added value’ services, such as an EAP, which he says are often woefully under-used.
McLoughlin says there has been far more enthusiasm for benefits like virtual GPs, which have been widely added to group risk policies in the wake of the coronavirus pandemic. However there was some debate about where access to financial advice would sit on a list of most valued staff benefits.
Consultants said much would depend on the cost of this, and how it was promoted to employees. If people use the service and can see their financial situation improve then this is likely to be a highly rated benefit, Bee says.
Herbert said: “I think there is a real opportunity here. Employers know they need to do being more to be support their employees. The Covid crisis may refocus their minds on this. But we need to create the demand for such services, from employers as well as employees, and ensure the tools and advice are fit for purpose and understood by the average man in the street.
“I don’t think we are there yet, whether you are talking about advice or guidance. But I think if we can get this right it could be a real opportunity.”