…that’s what a recent financial study undertaken by My Pension Expert suggests. The study discovered that over 50% of 2,000 participants believe this to be true – rising to nearly 10% more for those over 55. Given that this is the age when you can access most pensions, this is a real concern for retirement planners. Not because we’re afraid of losing out on business, but because it indicates that more than half of people able to access their pension are likely to attempt DIY financial planning to avoid engaging with a financial planner who could really help them. Sadly, we don’t have time to cover all of the problems associated with attempting tax planning with little to no experience, but it’s not pretty.
So where does this generalisation of financial planners originate from? A few individuals in the profession have cast their views on the matter. Some believe the banks are to blame, with their historic mis-selling of investment bonds. Others are pinning it on the media, stating that the papers jump on financial services scandals, focusing on the damage caused by crooks, and never the successes of honest individuals. What do we think? We think it’s a bit of column A and column B. It’s indisputable that industry has a stained reputation, courtesy of scrupulous firms and banks (past and present). We also know cowboys are still operating in the same space as us, tainting the image of honest individuals and all the good they do. But we think more than opinions need to change.
What’s changed since then and what still needs work?
Financial services are forever evolving which means firms are forever adapting. This is positive, because it means the industry is innovating to keep offering real value to consumers. Which is most firms’ primary objective. For example, technology has played a huge part in streamlining simpler services – promoting convenience and cutting costs. Robo-advice and platforms are only a couple of examples that didn’t exist 10 years ago that are prominent players in financial arena today. They’ve completely transformed the way we work and what consumers can access. But where there are responses that positively change the landscape of the finance industry, there are also negative impacts caused by ‘progression’. Which could actually be doing more bad than good.
My Pension Expert revealed that nearly 4/5 of those asked would be more likely to seek financial advice if there were harsher punishments for unethical advisers. This is something both consumers and the profession have wanted for many years. And is in fact already underway. The FCA are imposing considerable fines for firms caught misadvising clients. Which is a good thing, right? In principle, yes. Imposing consequences for crooked advisers is probably an effective deterrent. But in practise, this move came with unintended consequences. Professional Indemnity Insurers caught wind of the increased FOS pay-outs, and hiked up firms’ annual premiums. In turn, making our services more expensive – which 3/4 of those surveyed said would also deter them from seeking professional advice. Catch 22?
So, could it be argued that the media’s representation of a handful of firms ill-advising individuals – like the British Steel debacle – scared people into a movement that ultimately disadvantages more people than were affected before? Either way, it’s showing no signs of slowing down. Over the last 5 years we have been forced to disengage with hundreds of clients whose fees could no longer cover our servicing costs. Their ‘fix’ is preventing clients who want advice from being able to afford it. Within 5 years, PenLife’s PI Insurance has nearly doubled – taking the annual premium into the 6 figure bracket.
The FCA’s alternative silver bullet solution was to improve transparency over fees – encouraging people to fear ‘hidden costs’ less. But for the firms who were always forthcoming with the cost of their service, it doesn’t take away from the fact that, like any business, we can’t run at a loss. And currently it costs more than most can afford. Whether that’s down to regulation, inflation, insurance or the pesky media playing a part. From a business and economic standpoint, our minimum investment amount can continue to increase with rising business costs as dictated by regulators and insurers. And we will survive. But from a consumer perspective, more and more people will be cut off from a service that could improve their quality of life. Which only inflames the UK’s polarisation conversation.
What’s the solution?
Now we’ve identified that the problem is systemic, the focus should be less about trusting financial advisers and more about affordability. Even if the nation’s trust barrier was miraculously overcome overnight, it wouldn’t bridge the ever-widening advice gap prevalent in the UK. We think the FCA needs to go back to the drawing board to find another proactive way to deter crooks which doesn’t punish the good guys. For example, tougher qualification requirements, more robust internal standards or more thorough compliance audits.
The current environment is the perfect breeding ground for further misconceptions to form, exacerbating an already well-established stigma that “financial advisers are untrustworthy, greedy crooks who only help the rich get richer”.
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