Is there an advice gap?
The advice gap is a phrase used to describe the situation where not enough people are getting financial advice. Some people such as The Financial Services Consumer Panel argue that there isn’t an advice gap others like myself, argue there is advice gap into which many people are falling.
Perhaps this phrase is being used too loosely and needs tightening up for fear that using it as a catch all phrase to describe one of the consequences of the new pensions freedoms we will miss the really important point.
The important point is that there is a vacuum or ‘no man’s land’ which exists between those who are able to make good decisions on their own and those who take financial advice. People who find themselves in this vacuum don’t know where to go for help, guidance or advice and consequently will not properly engage with the important issues and therefore may make the wrong decisions.
There may not be a gap in terms of supply and demand because there is enough adviser capacity to satisfy the current demand. The problem is that there does not appear to be enough demand for advice.
Advice is needed
I think there is a huge need for advice but this is not being translated in demand because a lot of people are totally confused and simply do not understand the necessity or value of financial advice let alone where to get it.
I have consistently argued that the starting point is that money is important so it cannot be trivialised but in the modern world we have to show people how they can engage with financial advice in a similar way that they go about other things in their daily lives. Therefore the industry must do a lot more to explain the benefits of advice and encourage people to put their toe in water and try it out. The challenge is to restore trust in financial advisers and to convince people that advice is not too expensive or complex.
In short, advisers, and the FCA, do not have to compromise on the important aspects of advice and suitability but they can make the process more customer friendly and cost efficient.
Robots are not the answer
Finally, arguing that robo-advice is the answer is lazy thinking. We don’t expect a robot to select our next book or new clothes so why should we expect a robot to select our retirement income options. We use automated process as part of our decision making process not necessarily to make the final decision.
Mind the gap
It is vitally important that the gap is closed and the advice vacuum is filled because otherwise there will be a whole generation of individuals left out in the financial cold.