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Consumers and Financial Advice - UK - May 2013

“Consumers see online channels as a starting point for financial advice, but believe that online services lack the professionalism, expertise or authority associated with IFAs or bank-based advice services.”

– Deborah Osguthorpe, Head of UK Financial Services Research

Some questions answered in this report include:

  • Does the ‘independent advice’ label matter post-RDR?
  • Are consumers willing to pay for financial advice?
  • Will online tools fill the advice gap created by the RDR?
  • What do consumers look for from financial advice services?

 

People say that they value financial advice, but most remained unconvinced about actually paying for it. The Retail Distribution Review (RDR) has prompted advisers and financial product providers to consider the cost of advice by forcing a move away from commission in the retail investment market. Awareness of the changes among consumers, though, is limited. Only a fifth of consumers feel that they have a good understanding of what the RDR’s changes involve.

The RDR is expected to make it difficult for those with lower sums to invest to be able to access financial advice. Many high-street banks have withdrawn their investment advice services, while some consumers will be put off by the cost of using an adviser. Online advice could help to fill this gap in advice services. However, online channels have limitations for more complicated products where engagement is low and consumers prefer seek the expertise and reassurance of a financial services professional.

This report examines consumer attitudes towards financial advice. It looks at the channels of advice that are typically used, and people’s perceptions of these sources of advice. It also provides insight into consumer understanding of the RDR and how they view the regulatory changes.

 

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Table of contents

  1. Introduction

      • Abbreviations
      • Executive Summary

          • Financial advice – market backdrop
            • RDR takes effect and banks withdraw investment from investment advice
              • Consumers remain cautious but the ageing population will drive demand for advice
                • Some signs of improvement in consumer sentiment
                  • Figure 1: UK consumer confidence index, January 1998-February 2013
                • Sources of financial advice
                  • Consumers look online for advice but also use financial services professionals
                    • Figure 2: Sources of financial advice or guidance, January 2013
                  • Consumer perceptions of financial advice services
                    • Online channels of advice are seen as a starting point
                      • Figure 3: Correspondence analysis for words associated with channels of financial advice, January 2013
                    • A third of consumers would turn to banks for investment advice
                      • Consumer attitudes towards financial advice and the RDR
                        • Around a fifth of consumers have a good understanding of RDR changes
                          • Figure 4: Awareness of RDR changes, January 2013
                        • Consumers support getting rid of commission but believe financial advice should be free
                          • Figure 5: Attitudes towards financial advice and the RDR, January 2013
                        • Consumers want independent advice but are open to more specialist services
                          • Figure 6: Consumer preferences for financial advice services, January 2013
                        • What we think
                        • Issues in the Market

                            • Does the ‘independent advice’ label matter post-RDR?
                              • Are consumers willing to pay for financial advice?
                                • Will online tools fill the advice gap created by the RDR?
                                  • What do consumers look for from financial advice services?
                                  • Trend Application

                                    • Becoming more approachable
                                      • Online tools to encourage regular contact
                                        • Making the most of experience
                                        • Regulatory Context

                                          • Key points
                                            • The RDR is finally here
                                              • Figure 7: Summary of key requirements for the retail investment market, pre- and post-RDR
                                            • Improving trust and transparency…
                                              • … but raising concerns about a gap in financial advice services
                                                • Many banks withdraw investment advice services
                                                  • Figure 8: Overview of selected retail banking providers investment advice services post-RDR, February 2013
                                                • Sharp decline in number of financial advisers during 2012
                                                  • Money Advice Service to prioritise younger adults and lower income groups
                                                    • Development of simple ‘non-advised’ products
                                                      • European regulations on the horizon for the financial advice market
                                                        • Most non-advised sales banned in the mortgage market
                                                        • Economic and Demographic Context

                                                          • Key points
                                                            • Economic weakness pushes up the saving ratio
                                                              • Figure 9: Quarterly changes in GDP and saving ratio, Q1 2000-Q3 2012
                                                            • Interest rates provide boost for borrowers but pain for savers
                                                              • Figure 10: Official bank base rate and three-month LIBOR, January 2006-January 2013
                                                            • Some positive signs on the horizon for the mortgage market
                                                              • Uncertainty continues to undermine appetite for investment
                                                                • Figure 11: FTSE 100 and FTSE All Share – adjusted closing values, January 2006-Febraury 2013
                                                              • Ageing population will drive demand for pension and retirement income advice
                                                                • Figure 12: Cohort life expectancy at age 65, by gender, 1981-2057
                                                            • Consumer Sentiment

                                                              • Key points
                                                                • Tentative signs of improvement in consumer confidence
                                                                  • Figure 13: UK consumer confidence index, January 1998-February 2013
                                                                • A quarter describe their financial situation as healthy…
                                                                  • Figure 14: Trend in consumer financial situation, June 2009- January 2013
                                                                • … but more than a third feel their financial position worsened during 2012
                                                                  • Figure 15: Trend in financial situation compared to a year ago, July 2011- January 2013
                                                                • More than a quarter are confident about their financial prospects for 2013
                                                                  • Figure 16: Trends in consumer sentiment for the coming year, June 2009-January 2013
                                                              • Financial Product Ownership and Value of Investible Assets

                                                                • Key points
                                                                  • Cash-based savings dominate for those with limited financial product ownership
                                                                    • Figure 17: Financial product ownership, January 2013
                                                                    • Figure 18: Repertoire of savings/financial product ownership, January 2013
                                                                  • Nearly three fifths have less than £10,000 in investible assets
                                                                    • Figure 19: Value of investible assets, January 2013
                                                                  • Link between product ownership and investible assets
                                                                    • Figure 20: Financial product ownership, by value of investible assets, January 2013
                                                                • Sources of Financial Advice

                                                                  • Key points
                                                                    • Online channels and professional advice services are closely matched in usage
                                                                      • Figure 21: Sources of financial advice or guidance used in last three years, January 2013
                                                                    • Usage of bank advice and IFA services increases with age
                                                                      • Figure 22: Usage of bank and IFA/financial planning advice services, by age group, January 2013
                                                                    • Use of IFA services increases in line with income
                                                                      • Figure 23: Usage of bank and IFA advice services, by annual household income, January 2013
                                                                    • Online forums attract under 35s…
                                                                      • … but price comparison sites are more likely to appeal to 35-44-year-olds
                                                                        • Friends and family are the most widely used source of financial advice
                                                                          • The majority rely on a limited range of sources of advice
                                                                            • Figure 24: Number of sources of financial advice or guidance used in last three yaers, January 2013
                                                                          • IFA users are likely to use several different sources of advice
                                                                            • Figure 25: Sources of financial advice or guidance, by repertoire of sources of financial advice or guidance, January 2013
                                                                        • Advice Channel Preferences by Product

                                                                          • Key points
                                                                            • Banks/building societies lead the way on savings and mortgage advice…
                                                                              • Figure 26: Advice channels most likely to be used to arrange different financial products, January 2013
                                                                            • … but IFAs are first port of call for investment and retirement income products
                                                                            • Consumer Perceptions of Different Sources of Advice

                                                                              • Key points
                                                                                • Internet is a starting point for financial advice
                                                                                  • Figure 27: Words most associated with different sources of advice, January 2013
                                                                                • IFAs are strongly associated with being expensive
                                                                                  • Bank advice services edge IFAs in terms of approachability and convenience
                                                                                    • Correspondence analysis of advice channel associations
                                                                                        • Figure 28: Correspondence analysis for words associated with channels of financial advice, January 2013
                                                                                    • Consumer Awareness of the RDR Changes

                                                                                      • Key points
                                                                                        • A fifth feel they have a good understanding of the RDR changes
                                                                                          • Figure 29: Awareness of RDR changes, January 2013
                                                                                        • More than a third of IFA users have good understanding of RDR changes…
                                                                                          • Figure 30: Awareness of RDR changes, by type users of IFA and bank advice services, January 2013
                                                                                        • … although a similar proportion have not heard about the RDR
                                                                                          • Communication is crucial for banks still offering investment advice
                                                                                            • RDR aware consumers are more likely to own pensions and investments
                                                                                              • Figure 31: Financial product ownership, by awareness of RDR changes, January 2013
                                                                                              • Figure 32: Value of investible assets, by awareness of RDR changes, January 2013
                                                                                          • Attitudes Towards Financial Advice and the RDR

                                                                                            • Key points
                                                                                              • The majority are supportive of getting rid of commission…
                                                                                                • Figure 33: Attitudes towards financial advice and the RDR, January 2013
                                                                                              • … but remain unconvinced about paying for financial advice
                                                                                                • Opinions are split over trust in the financial advice market
                                                                                                  • The RDR-aware are broadly supportive of changes to advice market
                                                                                                    • Figure 34: Agreement with attitudes towards financial advice and the RDR, by awareness of RDR changes, January 2013
                                                                                                  • The online threat
                                                                                                    • IFA users are more likely to value advice than bank customers
                                                                                                      • Figure 35: Agreement with attitudes towards financial advice and the RDR, by usage of selected sources of financial advice or guidance, January 2013
                                                                                                  • Financial Advice – Consumer Preferences

                                                                                                    • Key points
                                                                                                      • Consumers show a strong preference for independent advice
                                                                                                        • Figure 36: Consumer preferences for financial advice services, January 2013
                                                                                                      • Specialist advice services could become more common
                                                                                                        • Consumers divided over merits of qualifications vs. adviser experience
                                                                                                          • Older consumers are more likely to opt to pay a separate fee for advice
                                                                                                            • Figure 37: Consumer preferences for paying for financial advice services, by age group, January 2013
                                                                                                          • Preference for face-to-face advice stretches across all age ranges…
                                                                                                            • Figure 38: Consumer preferences for face-to-face vs. online financial advice, by age group, January 2013
                                                                                                          • … but online advice services have potential for growth
                                                                                                            • RDR-aware more likely to consider advice from product specialists
                                                                                                              • Figure 39: Consumer preferences for financial advice services, by awareness of RDR changes, January 2013
                                                                                                            • IFA users are more prepared to delegate responsibility for their finances
                                                                                                              • Figure 40: Consumer preferences for financial advice services, by selected sources of financial advice or guidance, January 2013
                                                                                                          • Financial Advice and RDR Target Groups

                                                                                                            • Key points
                                                                                                              • Financial advice target groups
                                                                                                                • Figure 41: Financial advice target groups, January 2013
                                                                                                              • Cost-conscious advice seekers – 24% of online population
                                                                                                                • Professional advice cynics – 17% of online population
                                                                                                                  • Quality advice purchasers – 34% of online population
                                                                                                                    • Professional advice advocates – 25% of online population
                                                                                                                        • Figure 42: Agreement with attitudes towards financial advice and the RDR, by target groups, January 2013
                                                                                                                    • Appendix – Financial Product Ownership and Value of Investible Assets

                                                                                                                        • Figure 43: Savings product ownership, by demographics, January 2013
                                                                                                                        • Figure 44: Financial product ownership (continued), by demographics, January 2013
                                                                                                                        • Figure 45: Financial product ownership (continued), by demographics, January 2013
                                                                                                                        • Figure 46: Financial product ownership (continued), by demographics, January 2013
                                                                                                                        • Figure 47: Repertoire of savings/financial product ownership, by demographics, January 2013
                                                                                                                        • Figure 48: Value of investible assets, by demographics, January 2013
                                                                                                                        • Figure 49: Value of investible assets (continued), by demographics, January 2013
                                                                                                                        • Figure 50: Value of investible assets, by repertoire of savings/financial product ownership, January 2013
                                                                                                                    • Appendix – Sources of Financial Advice

                                                                                                                        • Figure 51: Sources of financial advice or guidance, by demographics, January 2013
                                                                                                                        • Figure 52: Sources of financial advice or guidance (continued), by demographics, January 2013
                                                                                                                        • Figure 53: Sources of financial advice or guidance (continued), by demographics, January 2013
                                                                                                                        • Figure 54: Sources of financial advice or guidance, by repertoire of savings/financial product ownership, January 2013
                                                                                                                        • Figure 55: Sources of financial advice or guidance, by value of investible assets, January 2013
                                                                                                                        • Figure 56: Repertoire of sources of financial advice or guidance, by demographics, January 2013
                                                                                                                    • Appendix – Consumer Awareness of the RDR Changes

                                                                                                                        • Figure 57: Awareness of RDR changes, by demographics, January 2013
                                                                                                                        • Figure 58: Sources of financial advice or guidance, by awareness of RDR changes, January 2013
                                                                                                                        • Figure 59: Awareness of RDR changes, by repertoire of sources of financial advice or guidance, January 2013
                                                                                                                        • Figure 60: Sources of financial advice or guidance, by awareness of RDR changes, January 2013
                                                                                                                    • Appendix – Attitudes Towards Financial Advice and the RDR

                                                                                                                        • Figure 61: Agreement with the statements ‘It’s worth paying for good quality, professional financial advice’ and ‘Financial advice should be a free service’, by demographics, January 2013
                                                                                                                        • Figure 62: Agreement with the statements ‘I would not be prepared to pay for financial advice in any circumstance’ and ‘Being able to afford financial advice in the future is a concern’, by demographics, January 2013
                                                                                                                        • Figure 63: Agreement with the statements ‘Financial advisers cannot be trusted to act in the best interests of their clients’ and ‘I tend to trust financial advisers to provide an impartial service’, by demographics, January 2013
                                                                                                                        • Figure 64: Agreement with the statements ‘Getting rid of commission payments to advisers is a good idea’ and ‘Financial advisers offer a professional service like accountants and solicitors’, by demographics, January 2013
                                                                                                                        • Figure 65: Agreement with the statements ‘Financial advisers provide a valuable service’ and ‘The internet contains all the information I need to make financial decisions’, by demographics, January 2013
                                                                                                                        • Figure 66: Agreement with attitudes towards financial advice and the RDR, by repertoire of savings/financial product ownership, January 2013
                                                                                                                        • Figure 67: Agreement with attitudes towards financial advice and the RDR, by value of investible assets, January 2013
                                                                                                                    • Appendix – Financial Advice – Consumer Preferences

                                                                                                                        • Figure 68: Consumer preferences for financial advice services, by demographics, January 2013
                                                                                                                        • Figure 69: Consumer preferences for financial advice services (continued), by demographics, January 2013
                                                                                                                        • Figure 70: Other consumer preferences for financial advice services, by demographics, January 2013
                                                                                                                        • Figure 71: Consumer preferences for financial advice services, by value of investible assets, January 2013
                                                                                                                    • Appendix – Target Groups

                                                                                                                        • Figure 72: Target groups, by demographics, January 2013
                                                                                                                        • Figure 73: Value of investible assets, by target groups, January 2013
                                                                                                                        • Figure 74: Financial product ownership, by target groups, January 2013
                                                                                                                        • Figure 75: Sources of financial advice or guidance, by target groups, January 2013
                                                                                                                        • Figure 76: Consumer preferences for financial advice services, by target groups, January 2013
                                                                                                                        • Figure 77: Awareness of RDR changes, by target groups, January 2013

                                                                                                                    Companies Covered

                                                                                                                    • Barclays Bank plc
                                                                                                                    • Grupo Santander UK
                                                                                                                    • HSBC Investments (UK) Limited
                                                                                                                    • Legal & General Group PLC
                                                                                                                    • Lloyds Banking Group
                                                                                                                    • Nationwide Building Society
                                                                                                                    • Royal Bank of Scotland Group plc

                                                                                                                    Consumers and Financial Advice - UK - May 2013

                                                                                                                    US $2,842.31 (Excl.Tax)