THE UK ADVICE GAP

2020

ARE CONSUMER NEEDS FOR
ADVICE BEING MET?

In partnership with:

Welcome to the 2020 edition of OpenMoney’s UK Advice Gap Report, the second year we have run this study.

The data, combined with our own experience of speaking to customers every day, gives us an insight into the financial lives of people of all ages and levels of wealth. It highlights the real issues presented by the advice gap in the UK and the importance of the finance industry and policy makers working together to increase the availability of regulated financial advice.

There is a danger that Coronavirus will be used by some as an excuse to hide existing problems. This is particularly the case with the state of many household’s finances. As this research shows, much of the population was already in a precarious financial situation in the days before the crisis really escalated. Too many people were not saving for their future, too few were planning their finances in advance and not enough were able to access regulated financial advice. The events of the last few months have only amplified these problems.

At OpenMoney we are determined to change this. We want to make financial advice more accessible to more people, helping them take control of their money, build up savings and start investing in their future.

We believe this mission has never been more important.

The advice gap is growing

Some 59% (2019: 56%) reported having some form of household debt and 44% (2019: 46%) had run out of money before their next pay at least once in the previous year. The need for accessible, affordable - and particularly free - advice has never been greater. This need is reflected in the increasing free advice gap, with some 20.9 million UK adults who would potentially benefit from advice unaware of free advice services or unable to access them, an increase of 1.1 million over the last year.

Our research tells us that when people take specialist money advice the vast majority have a good experience. And yet in the last two years only 12% of our respondents have accessed free money advice and just 10% have taken paid-for advice. We also asked respondents what differences, if any, there are between financial advice and financial guidance. A large number admitted that they simply don’t know, but those who did answer revealed a great deal of confusion about the terms, as well as some distrust.

Spending for the now rather than saving

It is clear from our research that too many people aren’t planning or investing for the future. In some cases they are not even doing so for the shorter term. Coronavirus has highlighted the need for a cash buffer and some of the impact we’re seeing now reflects the lack of that – whether through affordability, awareness or prioritisation.

Only 24% (2019: 24%) of our sample save every time they get paid, 21% (2019: 25%) don’t have a pension and the same number have no cash savings at all. A quarter (24%, 2019: 25%) plan their finances month-to-month and 17% (2019: 19%) don’t plan their finances at all. The need for accessible regulated financial advice to support people in developing a long-term perspective on their finances and planning for that is palpable.

It’s no surprise then that many households find themselves experiencing financial difficulties on an alarmingly regular basis. Just under half (44%, 2019: 46%) of respondents have run out of money before their next pay day, with one third (34%, 2019: 33%) turning to short-term credit (overdraft, credit card, payday loan or buy now/pay later scheme)because they didn’t have enough money for the essentials and 29% (2019: 27%) borrowing from family or friends to fund day-to-day expenses.

Distrust in advice is hindering people’s ability to save

Despite all that, respondent confidence in their ability to manage money and make financial decisions remains high with 62% (2019: 64%) stating that don’t need any help. When we asked our sample to share their perceptions of financial advice one theme was that it was unnecessary: “Someone working on commission trying to sell me something I don’t want or need”, “Someone who wants to charge you a lot of money for something you could research yourself" and various references to Google. Perception and understanding are just as significant issues as awareness and accessibility.

Most financial advisers work very hard to provide trustworthy, suitable, client-centred advice, but many people find it hard to differentiate between regulated advice and generic guidance. Worse still, there is a strong theme of distrust around the impartiality of advice and the value it provides.

Then this over confidence by respondents to source their own advice is belied by the data we have seen around debt and planning and the fact that 39% (2019: 40%) are either struggling with household expenses or have already fallen behind with their bills. This situation can only worsen as the longer-term impact of Coronavirus on people’s income starts to bite.

Taking the advice plunge 

The most frustrating aspect of all is that, despite some choice perceptions of paid-for financial advice and even of free guidance, the outcome when either is taken is largely positive. Those who received free specialist money advice were able to get help quickly (39%, 2019: 35%) and at a convenient time (46%, 2019: 49%) with around a fifth (21%, 2019: 20%) also getting help with related problems. There was a lower take up of paid-for advice but 16% (2019: 6%) also received help with connected issues.

The good news is that we do appear to be talking more about our money issues. However, UK adults are more comfortable turning to the ‘Bank of Mum and Dad’ which ranks as one of the UK’s largest mortgage lenders and now appears to be expanding its services into financial advice. Almost a third of those who speak to their family or friends for guidance have spent over 30 minutes in the last year doing so, and these conversations can cover a wide range of financial topics and products. Our challenge as an industry is to broaden that out to potentially more appropriate or better equipped sources.

Then for those to turn to help online, the three most commonly accessed sources of free advice over the last two years were MoneySavingExpert.com (11%, 2019: 10%), StepChange (11%, 2019: 9%) and CitizensAdvice (8%, 2019: 8%). Over a third of respondents (36%) found the advice through their own research, down from 40% in 2019, while a fifth (21%) followed the recommendation of friends or family, up from 16% last year, and a further 15% (2019: 15%) were referred by another organisation they approached for help.

What can we do to help?

It’s evident that many people in the UK are in aprecarious financial position, often relying on short-term debt or borrowingfrom friends while not being able to save for emergencies or the future. Thenumber of respondents with no outstanding household debt had already fallen from 38% last year to 34% this year and early evidence suggests the significant impact of Coronavirus on household finances will only drive this number further down. We also worry that the impact of Covid-19 will force more people to rely on credit cards, overdrafts and short-term debt for everyday essentials and potentially drive them into financial difficulties. And we are concerned that mortgage payment holidays will simply store up the problem for some people who could struggle with larger monthly repayments or longer terms when the ‘holiday’ ends.

With that in mind, we are calling on the Government to strengthen consumer credit law and align regulation around all forms of unsecured debt. Specifically, to cover fully buy-now-pay-later schemes, workplace lending services and other new forms of credit to ensure that using this form of debt is a considered action taken with full knowledge of the implications. We believe the industry’s ultimate goal must be to close the advice gaps and help everyone, regardless of age, wealth or experience, make the most of their money today and for the long term. A crucial first step is to improve the stability of many people’s day-to-day finances and slow the growth of debt.

Click the download link to download our full finance gap report to see more on how the advice gap as evolved both over the last 12 months and since the original advice gap research conducted by Citizens Advice in 2015, and what this means for you.

*All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,081 adults. Fieldwork was undertaken between 9th and 10th March 2020. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).

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Are financial marketplaces offering enough protection?
Anthony Morrow: Co-Founder of OpenMoney
February 16, 2021

In recent years there has been a huge rise in financial marketplaces, particularly through money management apps, influencer websites and challenger banks. Financial marketplaces are sites that provide access to a number of different third-party services in one place. This can be anything from mortgage and insurance providers, to the most common product you can find on them - investment platforms.

It’s easy to understand why they’ve become increasingly popular; they add additional content to engage the customer and more importantly, they introduce additional revenue streams for the app or website provider.

For a lot of people, the world of investing is something they would never consider for themselves, believing that it’s only accessible to those with plenty of disposable income to ‘play’ with. These marketplaces have done wonders to make investing more accessible by promoting these services to their customers, but there is also growing concern over whether they offer enough protection for potential investors. It is also great for the investment app as it can be a cost-effective way for them to attract new customers.

Some of the more successful marketplace providers have access to your financial information through any bank account, savings account, debt information or investments that you may have chosen to link to their app. Despite having access to all this information, we’ve found that they choose not to use it to determine whether the products on their marketplaces, especially investment apps, are right for you and instead leave them open for anyone to use.

A lack of suitability

Making investing accessible is great, but without any measures in place to ensure the suitability for customers, these marketplaces are wading into dangerous waters.

There is no obligation for marketplaces to offer advice or for them to ensure that the services being offered to their customers are actually in their best interest, nor are there any repercussions for them if the customer makes the wrong decision from their offering. They do, however accept referral payments from the services they recommend which raises questions as to whether these marketplaces are purely a money-making vehicle – for the wrong party.

Our 2020 Advice Gap Report revealed that 63% of people asked, said they find managing their money and making financial decisions challenging. We owe it to this group of people to educate and steer them in the right financial direction as well as protect them from companies who could be seen to be taking advantage of their situation.

Our experience using marketplace providers

To understand the experience we asked some OpenMoney employees to try them out to identify any pitfalls to keep an eye out for.

The first service we looked into gave us immediate access to their marketplace as they do all account holders. From the Marketplace we were able to select an investment provider, from a choice of 3, and set up a payment into a ‘conservative’ portfolio despite us stating that we had £5,000 in debt and that we couldn’t really afford to lose money.

Similarly, we tried a new online money management app, which allowed us immediate access to their marketplace. Their hook was highlighting investment providers’ past performance, meaning customers are only looking at the success rate of providers, rather than having any insight into the best fit for them personally. From this provider we were able to choose the first option available to us which asked no questions that would determine our suitability, but focused on the low cost of starting to invest whilst simultaneously mentioning in the small print all the fees that could be applied.

The last service we looked at, recommended an investment provider without asking any information to determine whether we should be investing at all. Once through to the provider, the journey was simple and we were screened to find the portfolio to suit. Despite us explaining our high level of debt and lack of emergency savings, we were still offered a ‘confident’ portfolio, with the addition of advice to lower monthly payments, pay down debts and start building our savings up.

The big point here is that none of the customers in the above examples would have been advised to invest if the suitability requirements of the Financial Conduct Authority were applied. In fact, it would be viewed as unsuitable advice.

What really stands out is the fact that these marketplace providers have access to see their customers’ financial situation, but they’re not using it. To use the information they have at hand would enable them to position themselves as a barrier between those who shouldn’t be looking to invest and the accessible investment platforms that could lead them into further financial difficulty.

The big picture

We’re not claiming that these investment marketplace providers don’t, or shouldn’t, have a place. Opening the world of investing up to a whole new audience is an exciting and progressive move, but we do believe that there needs to be stricter measures in place to protect this new generation of investors who aren’t ready to make their own investment decisions.  

It’s a case of just because you can invest, doesn’t necessarily mean that you should. Our own data from over 70,000 recommendations given to people asking if they’re ready to invest, shows that we’ve advised over 65% of people to use the money they have to work down their debts to make them more manageable and build up emergency savings first.  

Our mission is to make financial advice accessible and affordable for everyone; to arm people of all ages and incomes with the tools to make solid financial decisions and take control of their money. Here at OpenMoney we believe that helping people to understand their circumstances, and advising on the steps they can take to create strong financial foundations is the best way to get people to make their money work for them.

Valentine's in lockdown: Our creative and cost effective suggestions
Natasha Lainsbury: CRM Executive
February 12, 2021

Valentine’s in lockdown means one thing, time to get creative! The good thing about staying home is that it can be super low cost but extra personal. We’ve put together some suggestions on how to celebrate the day of love depending on you or your partner’s love language. If you’re not familiar with love languages, you can take this quiz here to find out yours!  

Valentine’s day is not all about romantic love, so whether you’re spending Valentines partnered, single, with your family or your friends, treat yourself and someone you love to something to brighten up this dismal Winter.  

Words of affirmation  

If your loved one appreciates words, then there are a few great gift ideas for this that all are low cost. There are a few different levels here, depending on how all-out-cheesy you fancy going. Of course, a card with thoughtful message is a sure-fire winner. If you’re a wordsmith how about a poem? After all, nothing says I love you like a Haiku. A cute trend we’ve seen on sites like Pinterest in recent years is to write some things you love about your partner on some nice coloured card, cut them out and pop them in a jar for them to read when they need a boost!

Acts of service

If acts of service mean a lot to your significant other, show them you love them by taking something off their plate. Whether that’s doing an extra load of washing or cancelling a subscription you know they’ve been meaning to sort, doing something this simple can take a lot of stress away. This is OpenMoney’s love language btw! Our bill-switching service is our way of making things a bit easier for you - we even handle the awkward break-up chat for you, you can read more about this here.  

Quality time

If you live with your partner you’ve probably spent a lot more time than usual together over the past year, but have you had much quality time? Dedicate some time to spend together, you could plan a games night; phones away and chat while you play your fave board games - probably best to avoid Monopoly though. As restaurants are closed, lots are offering at-home meal kits, treat your SO to one of these and have a restaurant meal at home. If you’re doing a virtual Valentine’s day you could do a virtual cook-along, play some conversational games or sync up your streaming service and watch a film together/apart.  

Receiving gifts

If your person’s love language is receiving gifts, time to get crafty. Pinterest has a load of make-yourself gifting ideas. While we’re all stuck at home without much to do, buying an activity you can do together is a fun option. At home pottery kits are all the rage at the moment, you can get some no-kiln clay online and recreate that famous ghost scene in your kitchen!  

Physical touch

If touch is what makes your partner feel loved you could create an at-home-spa. This is also a great way to pamper yourself this Valentine’s day, have a self-care day and treat yourself. Think face mask, bubble bath, shoulder massage. Don’t forget to play whale noises on Spotify and light a candle for ~ambience~.  

Whatever you’re up to, we hope you have a lovely Valentine’s Day.  

Your annual ISA allowance for the 2021/22 tax year
Binyamin Ghaffar: Digital Marketing Apprentice
February 10, 2021

We're beginning to approach the new tax year for 2021/22 which means that you may be thinking about how much you can invest into your Individual Savings Account (ISA) to take advantage of the tax benefits. If you’re unsure of what an ISA is or what those tax benefits are, you can read one of our previous blogs here to find out more.

The new tax year begins on the 6th April 2021 which is just round the corner! Here we’ll run through the allowances and rules around ISAs, so that you have everything you need to know.

What is my 2021/22 ISA allowance and when will it reset?

Your personal ISA allowance for the 2021/22 tax year is £20,000, the same as the previous tax year. This means that if you were to put £20,000 of your money into ISAs, you wouldn’t need to pay any tax on any interest or profits earned from your savings and investments.

Your ISA allowance will always reset annually at the beginning of the new tax year, which is always the 6th April!

Can I pay into different ISAs within the same tax year for 2021/22?

Absolutely! You have the option to invest your money into multiple ISAs. However, the total amount you can have within these ISAs has to be no more than £20,000, which is the maximum allowance for the 2021/22 tax year.

There are several ISAs which you could invest in, however, the most common ones are:

·      Stocks and Shares ISA

·      Cash ISA

·      Lifetimes ISA (LISA)

·      Innovative Finance ISA 

Will my ISA allowance be split across all my ISAs? Or will it be £20,000 per ISA?

Your ISA allowance is £20,000 in total. This means that if you were to invest into multiple ISAs such as a Cash ISA, a Stocks & Shares ISA, an Innovative Finance ISA and a Lifetime ISA (LISA), you cannot exceed your yearly allowance of £20,000 across these products.

It’s totally up to you whether you would want to split your yearly allowance into one or more of these different types of ISAs. If you decide to choose just the one ISA, you can invest up to £20,000 (apart from a LISA which has a limit of £4,000 due to government bonuses). However, if you decide to invest into a combination of different ISAs, your yearly allowance will need to be split across the different types of ISAs. 

If I do not use my yearly ISA allowance, would I able to carry it over to the next tax year?

You cannot carry over the current tax year’s ISA allowance over to the next tax year which begins on the 6th April 2021. Any allowance not used up by 5th April 2021 will be lost.

If I already have an ISA, am I able to transfer it to another provider?

Yes, you’re able to transfer your ISA to another provider if you find that they may be better than the one you currently have. To transfer an ISA in the current tax year to a different provider, you would need to transfer all your contributions made in that tax year to the provider you wish to hold your new ISA with.

The money which you’ve invested in previous tax years can also be transferred, but the amount you wish to transfer is up to you. Meaning you could either transfer all or part of your savings.

If you decide to transfer your ISA, you would need to get in touch with your ISA provider and fill out a form. Keep in mind that some providers can charge a fee when you decide to transfer.

To see whether transferring to OpenMoney would be a good option for you, you can try our free transfer review to see if it’s in your best interests.

When and how can I begin to start investing into my ISA?

You’ve still got some time now to invest in this tax year (2020/21) and make the most out of your £20,000 allowance before it resets on 6th April. For the tax year 2021/22, you can start using your new allowance on April 6th 2021.

To see if investing into a Stocks & Shares ISA is right for you, take our financial health check here. We’ll tell you what product and portfolio you should invest in to reach your financial goals.

 Always remember that whenever you’re investing, your capital (money) will be at risk.

Ofgem energy price cap: How can you save money?
Leona Tooley: Social and Content Manager
February 10, 2021

News of the latest Ofgem energy price cap increase has hit and it’s reported that energy prices are set to rise by up to £96 per year for millions of people in the UK. This is an alarming amount, especially if it comes as a surprise. If the energy price cap is news to you, we’ve got everything you need to know right here.

The energy price cap explained

What is it?

The price cap was put in place in 2019 by the government regulator for gas and electricity markets in Great Britain, Ofgem, to keep household costs manageable across the UK. The cap gives an upper limit on what providers are allowed to charge. They review and change this price cap twice a year.  

Why is the price cap increasing?

During the spring and summer of 2020, when the pandemic took full hold of the country, the wholesale price of energy decreased to record lows as demand for energy dropped with the warm weather. Ofgem’s latest review revealed that the wholesale costs of energy has increased on a global level as well as demand for energy across the UK skyrocketing due to the extreme wintery weather conditions we’ve been experiencing. The changes to the price cap will take effect from April 2021.

Who does the price cap affect?

Default tariffs: These may also be known as standard variable tariffs. They are a basic form of tariff and generally the least cost-effective because they go up or down depending on the wholesale energy prices. You may be on a variable tariff by default if your fixed tariff term has ended and you haven’t switched provider, or if you moved home and not agreed a new tariff with the current provider. There are currently around 11 million households on this type of tariff, so it’s worth checking which deal you’re on!

Pre-payment meters: These meters allow you to pay for your energy before you use it. You need to use a pre-payment card and key to top up your homes supply of gas and electricity.

Energy customers on a fixed tariff, meaning they pay the same amount agreed by their supplier every month, are unaffected by the energy cap  increase.

What can you do to avoid this?

The best thing you can do before the changes come in to play, is to shop around and switch providers! It can feel risky to step away from what you know but trust us, you could save a noticeable amount of money. You can read our blog on why you should change providers and to see how much you could save, here.

You don’t even need to do it yourself, the bill switching tool in our app can handle it all for you. With some key information from you, we can show you a quick quote that highlights how much you could be saving by switching supplier. Once you’ve decided on the right provider for you, you can switch within the app and your new supplier will handle all the admin! You can read more about our bill switching tool here.

You can download the OpenMoney app on both Apple and Android devices.

How much could you save by switching bill providers?
Alexandra Hall - UX Writer and Copywriter
January 26, 2021

With Covid keeping the majority of us at home, it makes sense that we’re using a bit more of everything such as gas and electricity, and of course our mobile phone and broadband packages!

With that in mind now would be a great time to look into whether there are better deals out there for you. You may be surprised and save more than you think.

Thinking about switching can be daunting, especially if you’ve been with your current provider for a while so we’re on hand to help!

Familiarity and loyalty don’t always pay off

In terms of energy, one of the ‘Big 6’ is most likely to be your energy provider when moving into a new property as a renter or homeowner. They are:

  • British Gas
  • E.ON UK
  • Scottish and Southern Energy (SSE)
  • npower
  • EDF Energy
  • ScottishPower

Together they have 70% of the energy market, providing around 45 million homes with energy in the UK. We know there’s some comfort from sticking with what you know and a name that you recognise, but bigger isn’t always better.

In the 2020 Which? customer satisfaction survey, none of the big 6 featured in the top 20 providers. In fact, small energy providers made up the top 10 for customer service, value for money, bill accuracy and more [1].

A Which? survey into mobile networks found that of over 4000 people asked, 42% had been with their provider for over 5 years [2] for reasons such as not knowing how to switch, thinking they have a good deal currently and worrying about not finding a better deal. These are all valid reasons, but they can all be tackled by doing a little digging!

They also surveyed 8000 people and found that nearly half of people asked had never changed broadband provider [3],mostly due to being happy with the service they are paying for. This is a very good reason for staying put, but trust us it’s still worth keeping an eye out for better deals!

Why change providers?

The deal that you get given initially from an energy provider is usually a ‘standard variable tariff (SVT)’, which are the most expensive. The price of SVTs change month to month, and can gradually increase without you realising. If you’re on a supplier’s standard tariff you could save around £305 a year by switching to a smaller provider, according to Ofgem [4].

Mobile phone and broadband providers are notorious for wooing new customers with competitive deals and even free gifts. Even if you have no issues with the provider you’re with at the moment, it’s unlikely that they’ll be able to offer you the kind of deal that a new provider will. Broadband providers tend to work on an introductory offer basis, so when your period of cheap service is over, it’s likely your rates will increase.

According to a This is Money report, by switching all bill providers, you could be looking at a saving of nearly £500 a year! [5]

How can we help?

Our OpenMoney money management app is designed to improve your overall financial situation. Thanks to our latest bill switching feature, we can show you the best energy deals and help you switch, as well as showing you the best mobile and broadband deals to suit your requirements.

Team this with our subscription spotter and money saving tips, on top having complete visibility over where your money is going, and you’ll be making significant changes and moving towards your financial goals in no time!

 The OpenMoney app is available for both Apple and Android users.

 

[1] Small energy firms top the energy satisfaction table: But where did your supplier rank?  | This is Money

 

[2] Why you’re wrong about mobile network providers and switching – Which? News

 

[3] The top five reasons people leave their broadband provider – Which? News

 

[4] Savings on energy bills for millions as price caps fall | Ofgem

 

[5] Households could save £500 on their bills by switching providers | This is Money

 

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