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Consumers and Financial Advice - UK - April 2012

“When looking for an IFA only a minority of British adults say they take into consideration two of the key elements of the advice market that the RDR is striving to improve – adviser qualification standards and how advisers are compensated. Instead, most of the emphasis tends to be placed on adviser reputation and cost.”

– George Zaborowski, Senior Financial Services Analyst

Some questions answered in this report include:

  • Why aren’t some of the well-off saving, and what can be done about it?
  • How is the internet influencing consumer attitudes toward advice?
  • Do consumers understand the issues the RDR is trying to address?
  • For what will consumers be seeking out financial advice for in 2012?

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Table of contents

  1. Introduction

      • Abbreviations
      • Executive Summary

          • The financial advice market
            • Friends and family the first port of call
              • Figure 1: Sources of financial advice or guidance, February 2012
            • More than two fifths use two or more sources of advice
              • Figure 2: Number of sources of financial advice or guidance used, February 2012
            • Market factors
              • Economic context
                • Figure 3: Monthly change in RPI and average weekly earnings, January 2008-February 2012
              • Consumer sentiment
                • Financial priorities
                  • Regulatory environment
                    • Savings levels and product ownership
                      • Figure 4: Value of investible assets, February 2012
                    • Mortgage and life insurance top advised products owned
                      • Figure 5: Product ownership in key markets for financial advice, February 2012
                    • The consumer
                      • Attitudes and behaviour towards advice
                        • Important factors when choosing an IFA
                          • What we think
                          • Issues in the Market

                              • Why aren’t some of the well-off saving, and what can be done about it?
                                • How is the internet influencing consumer attitudes toward advice?
                                  • Do consumers understand the issues the RDR is trying to address?
                                    • For what will consumers be seeking out financial advice for in 2012?
                                    • Future Opportunities

                                      • Face-to-face advice time
                                        • On campus financial advice
                                        • Internal Market Environment

                                          • Key points
                                            • RDR due to come into force on 1 January 2013
                                              • Number of directly authorised intermediary firms continues to diminish
                                                • Figure 6: Total number of directly authorised retail intermediary firms, September 2006-September 2011
                                              • In-branch investment advice may also become harder to come by
                                                • FSA attempts to ease concern over possible resistance to upfront fees
                                                  • RDR consumer checklist aims to help clients understand changes to advice
                                                    • Money Advice Service receiving frequent criticism since its launch
                                                    • Economic Context

                                                      • Key points
                                                        • The slow growth environment
                                                          • Figure 7: Quarterly changes in GDP and the savings ratio, 1998-2011
                                                        • Income squeeze still in effect but easing
                                                          • Figure 8: Monthly change in RPI and average weekly earnings, January 2008-January 2012
                                                        • Low interest rates make equity-based investments attractive
                                                          • Figure 9: FTSE 100 and FTSE All Share – closing values, January 2005-December 2011
                                                          • Figure 10: Agreement with statements about savings behaviour and attitudes, February 2012
                                                        • Little prospect for a significant rise in mortgage lending
                                                          • Figure 11: Gross and net secured lending, seasonally adjusted, December 2001-December 2011
                                                      • Consumer Sentiment

                                                        • Key points
                                                          • Consumer confidence set to remain shaky throughout 2012...
                                                            • Figure 12: UK consumer confidence, March 1997-March 2012
                                                          • …but could be moving upwards by year’s end
                                                            • 2012 personal finance expectations subdued
                                                              • Figure 13: Personal financial expectations for the coming year, December 2011
                                                          • Financial Priorities

                                                            • Key points
                                                              • Financial priorities for 2012 reflect the cautious mood of consumers
                                                                • Figure 14: Financial priorities over the coming year, December 2011
                                                              • Saving will be a luxury for a decent proportion
                                                                • Figure 15: ‘Any important’ personal financial priorities over the next 12 months, by demographics, December 2011
                                                            • Value of Investible Assets

                                                              • Key points
                                                                • Most British adults have savings worth less than £10K
                                                                  • Figure 16: Value of investible assets, February 2012
                                                                • Age and the capacity to save
                                                                  • Figure 17: Value of investible assets, by age, February 2012
                                                                • Savings directly linked to earning power…
                                                                  • Figure 18: Value of investible assets, by socio-economic group, February 2012
                                                                  • Figure 19: Value of investible assets, by gross annual household income, February 2012
                                                                • …but many not taking full advantage of their ability to save
                                                                • Product Ownership

                                                                  • Key points
                                                                    • Mortgage and life insurance top advised products owned
                                                                      • Figure 20: Product ownership in key markets for financial advice, February 2012
                                                                    • Investment product ownership strongly linked to wealth
                                                                      • Figure 21: Product ownership in key markets for financial advice, by level of investible assets, February 2012
                                                                    • Product ownership by demographics
                                                                      • Figure 22: Demographic profile of product ownership in key markets for financial advice, February 2012
                                                                  • Sources of Financial Advice

                                                                    • Key points
                                                                      • Friends and family the first port of call
                                                                        • Figure 23: Sources of financial advice or guidance, February 2012
                                                                      • Lifestage a key indicator of source of advice used…
                                                                        • Figure 24: Sources of financial advice or guidance, by gender and age, February 2012
                                                                      • …as is level of wealth
                                                                        • Figure 25: Sources of financial advice or guidance, by level of investible assets, February 2012
                                                                      • Those least confident about their finances also less likely to seek advice
                                                                        • Figure 26: Sources of financial advice or guidance, by financial confidence, February 2012
                                                                      • Over two fifths rely on more than one source of advice
                                                                        • Figure 27: Number of sources of financial advice or guidance used, February 2012
                                                                      • Use of multiple sources a good thing for professional advisers
                                                                        • Figure 28: Sources of financial advice by number of sources of financial advice or guidance used, February 2012
                                                                    • Attitudes and Behaviour towards Advice

                                                                      • Key points
                                                                        • Consumers are generally sceptical of financial advisers
                                                                          • Figure 29: Attitudes and behaviour towards financial advice, February 2012
                                                                        • Most are in favour of the move to fees
                                                                          • Figure 30: Agreement with the statement ‘I would rather pay a set fee for financial advice than pay for it through commission’, by source of financial advice, February 2012
                                                                        • Over a quarter doing their own research before seeking advice
                                                                          • IFA clients the least suspicious of the advice industry…
                                                                            • Figure 31: Agreement with the statement ‘Financial advisers are more interested in the commission they’ll earn than what is in their client’s best interest’, by source of financial advice, February 2012
                                                                          • …and also the most willing to pay for advice
                                                                            • Figure 32: Agreement with the statement ‘I would not pay for financial advice’, by source of financial advice, February 2012
                                                                          • Attitudes and behaviour by demographics
                                                                            • Figure 33: Demographic profile of those who were most likely to agree with the statement ‘Before I seek financial advice I do my own research first’, February 2012
                                                                            • Figure 34: Demographic profile of those who were most likely to agree with the statements 'Financial advisers are more interested in the commission they’ll earn than what is in their client’s best interest’ and ‘I would not pay for financial advice’, February 2012
                                                                            • Figure 35: Demographic profile of those who were most likely to agree with the statements ’When it comes to financial advice you tend to get what you pay for’ and ‘I would rather pay a set fee for financial advice than pay for it through commission’, February 2012
                                                                          • Just a minority are confident about arranging products without advice
                                                                            • Figure 36: Confidence in arranging select financial products without advice, February 2012
                                                                        • Important Factors when Choosing an IFA

                                                                          • Key points
                                                                            • Recommendations and track record most influential
                                                                              • Figure 37: Important factors when choosing an IFA, February 2012
                                                                            • Those with previous experience look beyond reputation and price
                                                                              • Figure 38: Important factors when choosing an IFA, by select sources of financial advice or guidance, February 2012
                                                                            • What’s important varies according to age group
                                                                              • Figure 39: Important factors when choosing an IFA, by gender and age, February 2012
                                                                            • Adviser independence a significant factor for those with higher savings
                                                                              • Figure 40: Important factors when choosing an IFA, by level of investible assets, February 2012
                                                                            • Higher earners expect the most
                                                                              • Figure 41: Important factors when choosing an IFA, by socio-economic group, February 2012
                                                                              • Figure 42: Important factors when choosing an IFA, by gross annual household income, February 2012
                                                                          • Financial Advice Target Groups

                                                                            • Key points
                                                                              • Target groups
                                                                                • Figure 43: Financial advice target groups, February 2012
                                                                              • Free Riders
                                                                                • Necessary Evil
                                                                                  • Up for Debate
                                                                                    • Disengaged
                                                                                      • Advised financial product ownership
                                                                                        • Figure 44: Financial product ownership, by financial advice target groups, February 2012
                                                                                      • Sources of financial advice
                                                                                        • Figure 45: Sources of financial advice or guidance, by financial advice target groups, February 2012
                                                                                      • What’s important when choosing an IFA
                                                                                        • Figure 46: Important factors when choosing an IFA, by financial advice target groups, February 2012
                                                                                      • Arranging products without advice
                                                                                        • Figure 47: Confidence in arranging select financial products without advice, by financial advice target groups, February 2012
                                                                                    • Appendix – Value of Investible Assets

                                                                                        • Figure 48: Trends in total value of investible assets, February 2012
                                                                                        • Figure 49: Most popular value of investible assets, by demographics, February 2012
                                                                                        • Figure 50: Next most popular value of investible assets, by demographics, February 2012
                                                                                    • Appendix – Product Ownership

                                                                                        • Figure 51: Most popular financial product ownership, by demographics, February 2012
                                                                                        • Figure 52: Next most popular financial product ownership, by demographics, February 2012
                                                                                    • Appendix – Sources of Financial Advice

                                                                                        • Figure 53: Sources of financial advice or guidance, by ownership of select financial products, February 2012
                                                                                        • Figure 54: Ownership of financial products, by select sources of financial advice or guidance, February 2012
                                                                                        • Figure 55: Most popular sources of financial advice or guidance, by demographics, February 2012
                                                                                        • Figure 56: Next most popular sources of financial advice or guidance, by demographics, February 2012
                                                                                        • Figure 57: Number of sources of advice used, by demographics, February 2012
                                                                                    • Appendix – Attitudes towards Advice

                                                                                        • Figure 58: Attitudes and behaviour towards financial advice, by ownership of select financial products, February 2012
                                                                                        • Figure 59: Attitudes and behaviour towards financial advice, by level of investible assets, February 2012
                                                                                        • Figure 60: Agreement with the statements ‘Before I seek financial advice I do my own research first’ and ‘When it comes to financial advice you tend to get what you pay for’, by demographics, February 2012
                                                                                        • Figure 61: Agreement with the statements ‘I would rather pay a set fee for financial advice than pay for it through commission’ and ‘I would not pay for financial advice’, by demographics, February 2012
                                                                                        • Figure 62: Agreement with the statement ‘Financial advisers are more interested in the commission they’ll earn than what is in their client’s best interest’, by demographics, February 2012
                                                                                        • Figure 63: Confidence in arranging mortgage products without advice, by demographics, February 2012
                                                                                        • Figure 64: Confidence in arranging buy-to-let mortgage products without advice, by demographics, February 2012
                                                                                        • Figure 65: Confidence in arranging life insurance products without advice, by demographics, February 2012
                                                                                        • Figure 66: Confidence in arranging private medical insurance products without advice, by demographics, February 2012
                                                                                        • Figure 67: Confidence in arranging pension products without advice, by demographics, February 2012
                                                                                        • Figure 68: Confidence in arranging stock market-based investments products without advice, by demographics, February 2012
                                                                                        • Figure 69: Confidence in arranging critical illness/income protection products without advice, by demographics, February 2012
                                                                                        • Figure 70: Confidence in arranging tax/inheritance planning products without advice, by demographics, February 2012
                                                                                    • Appendix – Important Factors when Choosing an IFA

                                                                                        • Figure 71: Most popular important factors when choosing an IFA, by demographics, February 2012
                                                                                        • Figure 72: Next most popular important factors when choosing an IFA, by demographics, February 2012
                                                                                        • Figure 73: Other important factors when choosing an IFA, by demographics, February 2012
                                                                                    • Appendix – Financial Advice Target Groups

                                                                                        • Figure 74: Financial advice target groups by attitudes and behaviour toward financial advice, February 2012
                                                                                        • Figure 75: Level of investible assets, by financial advice target groups, February 2012
                                                                                        • Figure 76: Financial advice target groups, by demographics, February 2012

                                                                                    Companies Covered

                                                                                    • Bank of England
                                                                                    • Barclays Bank plc
                                                                                    • Citizens Advice Bureau
                                                                                    • Ernst & Young
                                                                                    • Financial Services Authority (The)
                                                                                    • Gfk NOP
                                                                                    • London Stock Exchange plc
                                                                                    • National Savings & Investments
                                                                                    • NS&I
                                                                                    • Skype Technologies S.A.

                                                                                    Consumers and Financial Advice - UK - April 2012

                                                                                    £2,195.00 (Excl.Tax)