I noticed earlier today that the TSC’s Report on the Government’s Financial Inclusion Strategy has now been published. It’s not a long read, but one thing that really troubled me was the lack of engagement with financial planning as a route to improvement.
Financial inclusion is a key pillar of social sustainability. I don’t pretend to think that financial planners can improve the almost 1 million people in the UK who are unbanked, but I do think that there are things which the profession can do to help.
We’ve been talking for years about better support for clients affected by vulnerabilities or exclusion, and whilst we are definitely improving in some areas, there is still room for improvement.
FCA Financial Lives survey data showed that less than 10% of the adult UK population had received regulated financial advice on investments and pensions within the 12 months before the survey was conducted. That’s pretty low.
FSCS research in 2022 demonstrated that for the majority of respondents financial planning was seen as something only for the wealthy, a finding backed up by the FCA’s research on the advice gap. That is unlikely to change overnight, nor is the financial planning community going to be the only group that needs to take action to close the advice gap.
I can’t help but see the words from the FSCS survey as I write this. “Paying” for financial advice is for the wealthy. This is interesting, because it means that financial advice, or planning, in itself isn’t necessarily viewed as something for the wealthy, but paying for it is. This stacks up with the number of people who use Citizens Advice or MoneyHelper.
Whilst these aren’t the same as regulated advice (they’re able to provide guidance) it does mean that there are a huge number of people who reach out for help, but they don’t do so from the financial planning community.
Looking at the TSC report, the issue of low financial resilience comes to the fore once again. In this context it sounds like it’s a really approachable challenge for those in the Mortgage Advice and Employee Benefits space: People need the right kind of nudges to help them save, even if it’s just a tiny amount.
In a forum I was reading last night someone with a total household income of £30,000 was asking for advice on a house purchase of £200,000 with a 5% deposit. That’s more than 6x household income on 95% LTV. I’m not sure they’ll find a lender willing to meet their expectations. Even if they can, perhaps over a very long term, I’d be really worried about the other aspects of their financial situation; their ability to save, to make pension contributions, to eat?
On a week where the new PM has made the cost of living a key part of his strategy, encouraging people to save is never going to be easy. Many people are struggling to make ends meet. It’s a long way from a financial advice market where someone with £10,000 in an invested ISA might be a “small” client.
Financial planning can’t miraculously make the cost of living crisis go away, nor is there some impending intergenerational transfer of wealth that’s going to make things better for the majority, despite the impending Great Wealth Transfer. Financial education of those who are currently in school will be helpful, and isn’t something we should be neglecting, but that’s a LONG game, and there are a lot of people out there who need support now who we still need to reach.
I don’t pretend to have all the answers.
We need to embed a more comprehensive approach to vulnerability in the way we give advice, but also in the way we support those who do not have the financial resources to access advice.
Financial planners often use journey metaphors to illustrate the planner-client relationship, including signposting and navigation. We’re good at leading and directing the people we are working with, but we also need to think about how to help those who are outside of our target markets. Those people who come to us for help, where we might not be able to provide them with the service they need.
Whilst some firms might offer pro-bono advice, and I know at least one firm where the principal has had a tendency to do a lot of work for free, this isn’t always possible. Then there are those who offer specialist services for clients who might not have significant financial capacity now, but who have the potential to achieve it in the future. Or those who offer free tools and guidance to those who aren’t in a position to pay for advice.
At the end of the day, unlike CAB and MaPS, financial planning businesses are just that, businesses. They aren’t supported by grants and external funding, they have people, regulatory fees and PI costs to pay. These things don’t come cheap.
But, like all businesses viewed through a stakeholder lens, each financial planning firm has a social responsibility. It has a duty to its clients and to its staff, even to its suppliers, but also to society as a whole. It’s one of the reasons why it’s so refreshing and encouraging to see businesses who make the decision to use their skills and influence in education, in outreach and in supporting those people who might not be able to access their services in the usual manner.
Many financial planning practices are small, local businesses. They are part of the community. Some financial planners are the first port of call when something goes wrong in life, a trusted partner who helps overcome life’s struggles. In an ideal world I’d love to see everyone have the ability to access financial planning. I know how transformative it can be, but I’m also a pragmatic realist, we aren’t going to service 3 times the number of people we are currently serving, let alone 10 times the number without serious structural change and a huge increase in the number of financial planners.
Targeted support might help, but I can’t help feeling that it is going to be a lot more product driven than plan driven. Some people don’t need products. They need a plan, they need a guide, someone to hold their hand or point them in the right direction.
So, where does that leave us? The TSC report is worth a read, it will only take a few minutes and it’s probably good food for thought; if you got this far you can tell it’s pushed a few buttons in my brain. If you’re running a financial planning firm and you’re reading this, I’d encourage you to think about the points I’ve made about community and vulnerability.
We are part of the community; we can reach out and help that community without completely overwhelming our teams if we do it in a structured way. Similarly, we have a duty of care to the people we’re already working with, the families who rely on us for support and skill; let’s not forget that they, their families and loved ones, can also find themselves financially excluded for various reasons. How we support and include vulnerable customers, particularly those experiencing issues with financial resilience, remains of vital importance.
Until next time.
Alan