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Consumers and Financial Advice - UK - May 2015

“The importance of receiving financial advice has never been greater, and it is in the best interests of all parties to fill the advice gap in order to encourage people to become more financially aware and foster a more long-term approach towards savings and investing. This will prove especially challenging considering the economic recovery which the UK is currently experiencing, as credit levels edge upwards and savings ratios remain modest. Advice companies will have to look toward re-assessing their cost models and to innovate online in order to ensure that accessing financial advice is within reach of the average consumer.”
– Sean Song, Financial Services Analyst

This report looks at the following areas:

  • Economic and market conditions
  • Regulatory changes
  • The financial advice market

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Table of contents

  1. Introduction

      • Notes on definitions
        • Note on consumer research
        • Executive Summary

            • Economic and market conditions
              • Regulatory changes
                • Pension freedoms push more consumers towards online sources of information
                  • Rising regulatory costs may hamper hopes of innovation
                    • The financial advice market
                      • The number of financial advisers and advisory firms stays steady in 2014
                        • Figure 1: Number of advisers in the market, 2011-14
                      • Non-advised sales on the rise
                        • The consumer
                          • Banks and building societies are the most popular sources of advice for consumers
                            • Figure 2: Financial advice usage, February 2015
                          • Consumers who have used paid professional financial advice display the highest levels of satisfaction with the service
                            • Figure 3: level of satisfaction with service, February 2015
                          • 62% of people expect to need financial advice in the future
                            • 48% of 25-34-year-olds expect to need advice on mortgages…
                              • …while 26% of people over 45 expect to seek pension/retirement planning advice in the future
                                • People who have sought professional advice in the past are more likely to do so again in the future
                                  • Figure 4: Future financial advice needs, February 2015
                                • Younger people are more likely to require advice in more areas
                                  • Figure 5: Number of types of future financial advice needs by age
                                • Consumers prefer the transparency of fixed fees
                                  • Online could reduce the cost barrier which keeps many at bay
                                    • Figure 6: Financial advice payment preference, February 2015
                                  • The industry must work hard to build trust among those on the fence
                                    • Figure 7: Attitudes towards financial advice services, February 2015
                                  • What we think
                                  • Issues and Insights

                                      • The advice market shifts towards advice and solutions, and away from products and sales
                                        • The facts
                                          • The implications
                                            • Changes in the market amplify the advice gap
                                              • The facts
                                                • The implications
                                                  • Online tools can help lower the risk of consumer alienation with financial service companies
                                                    • The facts
                                                      • The implications
                                                      • The Market – What You Need to Know

                                                        • Average total weekly earnings growth has started to outpace inflation
                                                          • Savings ratios remain steady in 2014
                                                            • Low interest rates continue to push people towards equity-based investments
                                                            • Economic Environment

                                                              • Greater potential to save as average weekly earnings begin to outpace inflation
                                                                • Figure 8: monthly change in rpi and average weekly earnings (regular pay, excluding bonuses), January 2009-January 2015
                                                              • However, savings ratio remains steady in 2014
                                                                • Figure 9: Quarterly change in UK GDP and household savings ratio, 2004-14
                                                              • Consumer financial confidence improves at the start of 2015
                                                                • Figure 10: Financial Confidence Index, January 2009-15
                                                            • Regulatory Environment

                                                              • The FCA outlines plans to increase advisor costs by 10% for 2015/16
                                                                • Consumer demand shifts towards non-personalised sales channels
                                                                  • Changes in the pensions and mortgage markets elevate the need for advice
                                                                  • Companies and Brands – What You Need to Know

                                                                    • Providers are split on the benefits of consolidation
                                                                      • Concerns over product providers offering restricted advice
                                                                        • Government and third-sector bodies attempt to narrow the advice gap
                                                                        • Company Strategy

                                                                          • Some product providers are expanding their advice offering…
                                                                            • …but others are concerned about the risks in providing advice
                                                                              • Technology platforms - Online savings and investing platforms offer user-friendly alternatives
                                                                                • Savings and investing are the core business, but later-life planning is the future
                                                                                  • Execution-only online mortgage sales could be a disruptive force to specialist brokers
                                                                                  • The Consumer – What You Need to Know

                                                                                    • Most people would rather manage their own finances
                                                                                      • Banks and building societies are the most used form of professional financial support
                                                                                        • Independent financial advice receives very high satisfaction levels amongst consumers
                                                                                          • Most consumers expect to need financial advice in the future
                                                                                            • Financial advice is perceived as being too costly
                                                                                              • 18% would be prepared to go online if it reduced the cost of advice
                                                                                                • Some consumers are at risk of becoming alienated from the industry
                                                                                                  • Target Groups: The Advice-wary to the Open-minded
                                                                                                  • Attitudes toward Financial Management

                                                                                                    • The majority of consumers understand the importance of saving…
                                                                                                      • …and managing their finances
                                                                                                        • Figure 11: Attitudes toward financial management, February 2015
                                                                                                    • Financial Advice Use

                                                                                                      • 41% of people have sought out professional advice
                                                                                                        • Advice from banks and building societies is the most common form of professional advice
                                                                                                            • Figure 12: Financial advice usage, February 2015
                                                                                                          • Financial advisers are more likely to be used by older people
                                                                                                            • Advice from banks/building societies and Money Advice Service (MAS) more popular with 25-34 year-olds than other age groups
                                                                                                              • Figure 13: Financial advice usage, by age, February 2015
                                                                                                            • Just 12% of people who are financially struggling or in trouble turn to consumer organizations
                                                                                                              • 47% of people have not sought financial advice in the past three years
                                                                                                              • Satisfaction with Financial Advice

                                                                                                                • 44% of people who received paid professional advice were “very happy” with the service
                                                                                                                  • Figure 14: Level of satisfaction with service, February 2015
                                                                                                                • “You get what you pay for”: free guidance and pension freedoms
                                                                                                                • Future Financial Advice Needs

                                                                                                                  • The majority of people expect to need financial advice in the future
                                                                                                                    • Figure 15: Future financial advice needs, February 2015
                                                                                                                  • Mortgage Market Review (MMR) – 48% of 25-34-year-olds expect to need advice on mortgages
                                                                                                                    • Pension freedoms – 26% of people over 45 expect to seek pension/retirement planning advice in the future
                                                                                                                      • Slim demand for advice on life/protection insurance
                                                                                                                        • Financial advice clients tend to be repeat customers
                                                                                                                          • Figure 16: Future financial advice needs, by Financial advice usage, February 2015
                                                                                                                        • Younger people are more likely to require advice in more areas
                                                                                                                          • Figure 17: Number of types of future financial advice needs by age
                                                                                                                      • Financial Advice Payment Preference

                                                                                                                        • Fixed fees are the preferred way of paying for financial advice
                                                                                                                          • Figure 18: Financial advice payment preference, February 2015
                                                                                                                        • 18-24-year-olds show twice as much interest in paying an hourly rate for financial advice
                                                                                                                          • Financial advice on demand, please
                                                                                                                            • Figure 19: Attitudes towards financial advice, February 2015
                                                                                                                          • People see financial advice as being costly
                                                                                                                          • Attitudes towards Accessing Financial Advice

                                                                                                                            • Most people would prefer to receive financial advice online rather than face-to-face
                                                                                                                              • Figure 20: Attitudes toward accessing financial engagement, February 2015
                                                                                                                            • Over a fifth of users would check online reviews before using a particular adviser
                                                                                                                              • Higher earners show greater preference for face-to-face advice than other income brackets
                                                                                                                              • Attitudes towards Financial Advice

                                                                                                                                • The majority would only use a financial adviser who describes their services as ‘independent’
                                                                                                                                  • The industry must work hard to gain trust among those on the fence
                                                                                                                                    • “Do it for me” vs “Help me help myself”
                                                                                                                                      • Figure 21: Attitudes towards financial advice services, February 2015
                                                                                                                                    • Alienation with financial advice
                                                                                                                                      • 44% of consumers are confused as to how financial service firms can help them manage their financial affairs
                                                                                                                                        • Figure 22: Attitudes towards financial management, February 2015
                                                                                                                                    • Consumer’s Confidence in their Financial Decision-Making

                                                                                                                                      • Most consumers are confident about making their own financial decisions…
                                                                                                                                        • …but less so when it comes to big financial choices
                                                                                                                                            • Figure 23: Attitudes toward financial management, February 2015
                                                                                                                                          • Consumers display a fair amount of cynicism about financial advice
                                                                                                                                              • Figure 24: Attitudes toward financial management, February 2015
                                                                                                                                            • Target Groups: Segmenting the advice market: from the Advice-wary to the Open-minded
                                                                                                                                                • Figure 25: Target groups, February 2015
                                                                                                                                              • The Open-minded: Open to advice but confused as to how to get it
                                                                                                                                                • Face-to-face meetings are the best way of engagement
                                                                                                                                                  • Figure 26: Attitudes towards accessing financial advice, by target group, February 2015
                                                                                                                                                • The Financially Self-sufficient
                                                                                                                                                  • Pensions and retirement and tax/inheritance planning advice appeals to the Financially self-sufficient
                                                                                                                                                      • Figure 27: Future financial advice needs, by target group, February 2015
                                                                                                                                                    • The Advice-wary: The Nervous Planners
                                                                                                                                                      • The Advice-wary: Carpe Diem
                                                                                                                                                        • Costs and trust are the main barriers for this group
                                                                                                                                                          • Figure 28: Attitudes towards financial advice, by Target Groups, February 2015
                                                                                                                                                        • The Financially Apathetic
                                                                                                                                                        • Appendix

                                                                                                                                                          • Abbreviations

                                                                                                                                                          Companies Covered

                                                                                                                                                          To learn more about the companies covered in this report please contact us.

                                                                                                                                                          Consumers and Financial Advice - UK - May 2015

                                                                                                                                                          £2,195.00 (Excl.Tax)