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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.
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.
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.
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.
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.
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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