Imagine this for a second:
You’re in the upstairs bedroom putting your children to bed for the night. The wind is howling, rain lashes the windows. Just as your loved once start to fall asleep you feel the bed getting wet. Before you realise, the sheets are sodden. You quickly grab a towel and when your turn back you see water cascading from the ceiling.
The roof is leaking. Again.
What do you do?
After making sure your family and valuables are safe you call the local builder. They are reputable, a member of various trade bodies and they have great word of mouth. The next day they pop over to take a look at your home:
Sorry, can’t do this job.
What? Is it too complicated? Are you too busy? Do I need a specialist?
No the work is fine. But you live in a terrace house. I only do work on detached houses.
Welcome to the bizarro world of UK Financial Advice
That, of course, is ridiculous. No builder would ever say that. But for financial advice, many Independent Financial Advisers (IFAs) often explicitly say that upfront.
“Minimum wealth (income/assets) – £100,000”“Minimum mortgage value – £250,000”
“Minimum pension value – £100,000”– Just three random examples from unbiased.com, a search engine for IFAs, accountants and lawyers
The Advice Gap
Unless you already have significant savings it’s very difficult to find an IFA who can help you. Even when you find one that can help, if you have a small pot, the charges can end up being such a large proportion that it makes getting advice unaffordable. That’s because it costs those IFAs more money to advise you than they could realistically charge:
Upfront fees varied considerably… For a pension pot worth £150,000, the average cost was £2,383, or around 1.6% of the total pension, and the highest amount quoted an eye-watering £4,500.
Back to the builder
Stunned by your builders’ reaction you are left with two options. You can speak to a friend of a friend, newly retired, who once upon a time did some labouring. They’d be able to patch it up for you. Or you could go against your gut and call Dodgy McDodgeface Builders. You know they are cowboys, but you are desperate – the roof needs fixing.
Either way, in a year’s time your roof is leaking again.
At least for financial guidance, there are free resources out there like the Money Advice Service (MAs), The Pensions Advice Service (TPAS), Pension Wise and, if you’re being incredibly generous, websites like this one… But none of those places can tell you specifically what to do. They can only take you so far due to regulations. This chiefly came about from the Retail Distribution Review (RDR) over a decade ago. The FCA tightened up who and how advice could be given and effectively banned commissions on selling most financial products. The idea was to stop sharp practices, improve customer service and increase transparency.
Like many things, it was well-intentioned but poorly executed.
The result is the drawbridge to advice has been pulled up on the needy. People turn to friends of friends. Bookkeepers, accountants, lawyers. Or even those who have a passing interest in finance. I should know, I’m one of those guys.
The other route is much worse. Desperate customers, at a loss, try to swim the moat. Where the sharks are circling.
What can we do about it?
Unfortunately, there’s no Martin Lewis for personal finance. That’s because, in my view, there’s still a lot of doubt over where the boundary between advice (regulated) and guidance (not regulated) lies.
There’s no government minister whose specific brief is to act for the customers of financial advice. The closest we have is the Parliamentary Under Secretary of State for Pensions and Financial Inclusion who has incredibly broad role encompassing state pensions, private pensions, the Pensions Regulator through to financial guidance.
There’s the Financial Ombudsman and the Pensions Ombudsman. But by the time it’s got to those bodies it’s often too late. And that’s if you were ‘advised’ by somebody that was appropriately authorised.
We need the political will to help those who need it, not those who ask for it. Until then the silent majority hiding in the abyss of the advice gap.
All the best,
Young FI Guy