Encouraging referrals and taking action to improve trust has the potential to double the number of people paying for advice in the UK, according to the latest Lang Cat report.
In its report on the advice gap, published today (May 11), the Lang Cat explored the drivers behind people taking advice and looked at the barriers that prevent the majority of the population from doing so.
Now in its fifth iteration, the research also looked at the issues on the adviser side that prevent IFAs from delivering advice to a wider market.
Just 11 per cent of UK adults have paid for financial advice in the past year, according to the Lang Cat’s consumer research.
Lang Cat consulting director, Mike Barrett said the advice gap has never been a simple question of “who is and isn’t taking advice”.
“If things are to change, it is vital to understand what drives people to take advice, and what prevents them from doing so. Affordability is clearly a big part of the problem, but it’s not the only issue - there is a lot more that could and should be done to improve the perception, availability and accessibility of advice.”
Who is not getting advice and why?
Back in 2015, when Citizens Advice first looked at the advice gap it said it was made up on four distinct gaps.
- The free advice gap: This affects those who feel they would benefit from free advice but are unaware of, or unable to access free services.
- The affordable advice gap: This is where people are willing to pay for advice but think it is too expensive.
- The awareness and referral gap: This affects those who would benefit from advice but are unaware of the government’s free financial guidance service.
- The preventative advice gap: This is where earlier access to advice could stop non-money issues impacting people’s financial position.
Since 2015, the only one of these gaps to have seen a reduction is the preventative advice gap, narrowing from 23mn in 2015 to 15mn in 2023.
In the three other categories, the gap has widened by 20mn people.
The Lang Cat noted that affordability remains a major barrier to receiving advice.
“The sad reality is that for many people, savings and investments remain out of reach,” it said.
However the Lang Cat said by addressing a number of barriers - trust, awareness and confidence - the industry can almost double the amount of people paying for advice.
Trust
A lack of trust remains the biggest issue facing the advice sector, according to the research.
Of those who have not paid for advice in the past two years, and who said they are unlikely to do so in the future, trust topped the list of things that would need to change for 38 per cent of individuals.
This was up from 32 per cent in 2021.
The Lang Cat said this is not a new issue, with financial services regularly towards the bottom of the annual Edelman Trust Barometer. Currently it is only kept off the bottom of the table by social media.
On top of this, trust in financial advisers specifically is even lower than financial services as a sector.
Both Edelman and the Financial Conduct Authority, through its Financial Lives Survey, have shown that financial advisers are trusted even less than banks and lenders.
The perception of the financial advice profession remains split among those who are not paying for advice, with 26 per cent of respondents saying they viewed it in a positive light, with 47 per cent neutral and 21 per cent negative.
