5 min read 15 Jan 20
The information contained in this page is for professional Financial Adviser use only.
Cost is typically seen as one of the biggest barriers to financial advice. For some people, the issue of cost is purely a question of affordability, but it’s also partly driven by how consumers perceive the value of advice.
Demonstrating the benefits of advice can be challenging, given the often-complex nature of the advice process and the time it can take for its rewards to become apparent. And, unfortunately, it’s a known fact of behavioural science that human minds are not programmed to think long-term and often focus instead on more immediate rewards.
One way you might consider tackling this challenge is to present clients with the potential prospect of a tangible benefit, up front – by quantifying the value of financial advice.
In 2019 Royal London revisited its research completed with independent think-tank The International Longevity Centre to look at the impact advice can have on financial and pension wealth. It developed a thorough data analysis, based on The Wealth and Assets Survey – the largest piece of research of its kind in Britain - and the results presented a clear figure to demonstrate the benefit of advice.
Those surveyed who received financial advice over a seven-year period were on average £47,000 better off a decade later, compared to their unadvised peers.
The original research also challenged some of the typical preconceptions about barriers to financial advice. It’s natural to assume that the issue of cost comes down to the affordability of advice for some people. And that in turn inevitably implies that overall wealth is a key driver for advice.
However, the research suggested financial capability, rather than affordability, is a stronger driver of demand for seeking financial advice.
It’s important to note that when it talks about how people access advice in the research, this includes the following institutions: banks and building societies; insurance firms; accountants and solicitors; stock brokers and wealth managers; charities and unions; free advice agencies and, of course, a financial advice firm or sole/self-employed financial adviser. This definition of advice is wider than is typically used in the industry, according to which advice is serviced specifically provided by a regulated financial adviser.
The original research also looked at how financial capability can impact a person’s willingness and ability to take financial advice across groups with lower financial assets and those with higher wealth. And it found that respondents with high financial capability but less than £500 in assets were only slightly less likely to receive advice (19.0%) compared to those who had the lowest levels of financial capability but more than £36,000 in financial assets (21.8%).
Not only does this suggest that financial capability is a stronger driver of demand for financial advice than wealth, it also reinforces the wider argument made by many in our industry that improving financial capability could increase demand for financial advice.
One of the key findings from the updated research is that the proportionate impact of taking advice is greater for those of more modest means. For the identified ‘affluent’ group in the research, the uplift from taking advice is an extra 24% in financial wealth (eg shares, ISAs, bank accounts) compared with 35% for the non-affluent group. On pension wealth, the uplift is 11% for the affluent group compared with 24% for the non-affluent.
An important explanation for the improved outcomes for those who take advice is that they are more likely to invest in assets which offer greater returns though with greater risk.
Consulting an IFA firm or a sole/self-employed financial adviser was the most popular (40.8%) route to advice amongst those surveyed in the research, followed by 29% who received advice from someone working for a bank or building society.
However, while only 15% of the individuals who went through a firm of IFAs believed the advice to be free, over half of those (55%) who received advice via a bank or building society thought these services were free. This shows a clear lack of understanding about certain advice services and it may also call into question how effective communication and transparency is in some areas of the advice market. However, there have been a number of changes to increase fee transparency since 2017, when this research was conducted, which should hopefully have improved awareness and understanding amongst consumers.
Of course, there are many factors that can impact whether a client’s financial assets rise or fall over time. But being able to demonstrate the potential for clients to be £47,000 better off in 20 years or less may be something that helps you have more rounded conversations with those who are inclined to challenge the value of advice.
And, with nine out of ten people originally surveyed stating they were satisfied with the advice they received. And the vast majority also decided to go with their adviser’s recommendation, it also adds to the evidence that, for those who can be convinced to invest in advice, the experience is likely to be a positive one.
This is backed up by the latest research that again highlights that fostering an ongoing relationship with a financial advisor leads to better financial outcomes.
At, M&G Wealth we have worked hard to create a platform for you and your clients that offer you both the broadest investment choice and at a simple ‘all in pricing’. To find out more take a look at Your platform.
The information contained in this page is for professional Financial Adviser use only. If you are a private investor, please visit the Private Investor section or contact your Financial Adviser for more information.