In 2019 I had the stupid notion that an MBA would be a good thing to do. I’d always wanted to do some form of degree having not gone to university, and when the opportunity presented itself through work it seemed the ideal opportunity…then coronavirus happened. Not only was I confined to my house, but also confined to my office every weekend in never-ending virtual lectures. Suddenly, my bright idea didn’t seem such a bright idea… 

Why am I mentioning this in a blog about the UK’s advice gap? Well, to finish my MBA I had to do a dissertation and my chosen research subject was the advice gap in the UK and, more specifically, what prompts an individual to go and seek financial advice.  

The Persistent Challenge of the Advice Gap

Let’s start at the beginning. The advice gap represents all those individuals who would benefit from financial advice but are not receiving it. Now all of us in the industry are well versed in the reasons why individuals should seek financial advice, extending not just to the positive financial implications (with Open Money’s 2021 study saying it can have a positive influence of nearly £50,000 over a lifetime), but also positively influencing wellbeing, health and stress levels. Yet despite these benefits, the advice gap continues at a fairly persistent level, meaning it has turned into one of the greatest challenges currently facing the financial services industry, with neither the government nor FCA able to find a solution. 

Unpacking the Reluctance to Seek Financial Advice

Do people think they could do a better job themselves? Do they feel they don’t want to pay the fees involved? Maybe they don’t understand the options available to them and how they’d benefit?  

My Research Approach: Beyond the Classroom

Far better scholars than me have reviewed the problem, with multiple studies attempting to identify the consumer demographics and personality variables which influence financial advice-seeking behaviours. Yet when I read through the research, little consistency existed within their views and even when I was able to find some literary consensus, no attempts have been made to devise a strategy or solution which could be utilised to reduce the advice gap. 

My MBA therefore gave me the ability to do my own investigation. Utilising a series of online focus groups (which were a delightful break from the monotony of virtual classroom lectures), I spoke with a diverse range of attendees. Ranging from the old to the young, to those who had received advice to those who hadn’t, to those living in rural and in urban areas, and from all sorts of social backgrounds.  

The focus group sessions gave me much to think about with the participants talking openly about their experiences and opinions of financial advice and why they’d choose to seek it or not. Despite having so many opinions, what was fascinating was that a number of consistent themes began to emerge.   

Key Findings: Factors Influencing Advice-Seeking Behaviour

From the conversations, I was able to establish each of the factors below consistently had an impact on whether an individual looked to seek advice: 

Emotions – how an individual felt when previously discussing financial advice and how they felt when considering seeking financial advice. 

Complexity of need – financial planning needs vary from consumer to consumer and expand across a number of goals and products, this considers how complex an individual believes their own set of circumstances to be. 

Financial literacy – the level of understanding someone considers themselves to have with regards to financial matters. 

Self-efficacy – the impacts of an individual’s confidence, competency, their perceived ability to influence their financial outcomes and hold financial discussions. 

Conscientiousness – an individual’s level of self-control, willingness to follow process and desire to be seen to be doing the right thing. 

Value of advice – whether the person understands the positive implications of seeking financial advice. 

Complexity of transaction – the various aspects and steps understood to be required to implement a financial plan and execute the associated financial transactions. 

Perception of automated solutions – the individual’s views on the quality of advice and client experience when dealing with automated, or robotic, solutions, including the appropriateness of such a solution relative to the complexity of the individual’s financial planning needs. 

Conclusions and Potential Solutions

The next stage of the process was to try to assess how each of these themes impacted an individual seeking financial advice. Did those with a high appreciation of the value of advice always seek it? Did those with less complex needs always choose not to? Did those who had previously had a negative emotional reaction to financial advice give it a second chance? I felt I was on the edge of a breakthrough discovery… 

Now you have to remember, financial advice is complex and people are complex. This means it is often the case that many factors are happening all at once to influence an individual’s thoughts on seeking advice. While I had established some of the key determining factors, I hadn’t considered the multi-dimensional, interconnected nature of human decision making. It became clear that what was important was the combination of factors, rather than individual factors standing on their own. Just because someone considered robo-advice rubbish didn’t mean they’d always seek financial advice, as it would also depend on their levels of financial literacy, self-efficacy and conscientiousness. I now understood why the massive juggernauts of the FCA and government had failed to solve the problem and how the conclusion to my 12,000 word dissertation was unlikely to have the silver bullet of an answer. 

Having said that, two things did come through loud and clear. While I’ll save one of the two for another day, I do want to focus on financial literacy.  

A low level of financial literacy was the theme recorded to have the greatest negative influence on an individual’s advice-seeking behaviour. People who thought they had low levels of financial literacy avoided seeking advice, not because they didn’t appreciate the benefits of doing so, but because they felt apprehensive about putting themselves in a situation where they’d feel they could look “stupid”. Given a recent Wealthify survey attempting to benchmark financial literacy exposed the UK as a weak performer against similar developed countries like France, Canada and New Zealand, this should more than ever before get the policy makers in the FCA and government interested.  

A further finding of the research was that consumers with a combination of low financial literacy and self-efficacy would consider using robo-advice. Indeed, across all clients, strong scepticism for this form of advice was only noted where the individual’s needs were more complex (and then there was a clear preference to seek advice via human interaction). 

While we all know robo-advice did not land well in the UK (with numerous institutions, including Investec, UBS and Abrdn pulling out of this space), that wasn’t necessarily because the technology didn’t work or that people didn’t use it, it was largely because of concerns over the scale required to deliver a profit. What then, if robo-advice could be adapted and delivered in a different way to encourage clients with low financial literacy levels to seek advice? Could the UK government invest in using the technology as a method of introducing consumers to the importance of seeking financial advice by providing basic financial advice?  

The answer seems obvious as it could play a dual role as a financial educator (improving the country’s poor financial literacy standards) while also removing the possibility of being left to feel “stupid” in front of someone (and hence reducing the advice gap). Neither would there be a profitability barrier to overcome. 

Since I wrote my dissertation, the FCA’s work on the Advice Guidance boundary could make such an approach even more viable. Should their thoughts on widening the boundaries be implemented, the ability to provide ‘suggestions’ relative to ‘people like you’ would make implementing a solution for low complexity needs easier, while removing the potential advice liability which no doubt the government would be keen to avoid. 

So while there was no silver bullet, there definitely feels the potential to learn from the industry’s past failures in robo to reimagine how it could be used to solve our advice gap problem. If not, if nothing else, at least this kept me briefly occupied during covid. 

Next Up: Why not read our blog on: Digital Transformation and the Wealth Management Industry?