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+).
In February the FCA decided to regulate the Buy Now Pay Later industry. We’re proud of our You Only Pay Once (#YOPO) campaign and everyone else who fought alongside us, to help bring regulation to the industry.
We did it!
Last year, we launched our #YouOnlyPayOnce campaign to tackle the lack of regulation around Buy Now Pay Later schemes and promote the positive mindset that comes with only paying once.
Our research showed that providers like Klarna, Clearpay and Afterbuy can encourage unnecessary spending, are viewed as a form of gateway debt and that people would feel less anxious and happier if they didn’t use them.
Last year, with the pandemic wreaking havoc on people’s finances and Christmas spending just a few months away, we set out on a mission.
We joined with campaigner Alice Tapper (founder of Go Fund Yourself) in the fight to get Buy Now Pay Later regulated. We conducted research, worked with a range of fantastic influencers, who not only shared their debt stories but also encouraged their followers to do the same, and our co-founder, Anthony, wrote to over 30 MPs to persuade them to join the fight.
Big names like MoneySavingExpert and Which? soon got involved and in February of this year, we did it! The FCA announced that they’ll be regulating the Buy Now Pay Later (BNPL) sector, bringing more accountability to these providers and protection for consumers.
What does regulation mean for you?
It’s all good talking about a change to regulate BNPL services, but what does it all actually mean? The Financial Conduct Authority is an organisation that regulates the financial services industry in the UK. Their main roles are to:
1. Protect consumers by making sure businesses are treating their customers fairly.
2. Setting rules for businesses to follow and making sure they stick to them to keep the industry stable.
3. Promoting healthy competition between financial service providers.
The FCA have taken the decision to regulate the BNPL industry which will affect businesses such as Klarna, Clearpay and Laybuy. This is a good thing for both customers and the industry as a whole as it will:
Offer consumers the same protection they have with other types of credit, including affordability checks before taking on a new loan and support if they subsequently struggle with repayments. This could protect shoppers against the possibility of easily racking up thousands of pounds in debt and spending more money than they could afford.
Make sure services like Klarna, Clearpay and Laybuy will be subject to FCA rules requiring them to undertake affordability checks on customers and treat borrowers fairly.
Allow consumers to complain to the Financial Ombudsman Service if they feel they’ve been treated unfairly by one of these businesses.
Mean that these businesses will have to tighten up their advertising practices to make it completely clear to consumers that what they are offering is debt.
Whilst we continue to monitor the progress of this regulation coming into force, we can’t lose sight of the fundamental issues that need to be tackled. Regulation of Buy Now Pay Later is a step in the right direction to protect consumers but we know from our annual research on the financial ‘advice gap’, that access to affordable financial advice could make a huge difference to the state of the nation’s finances.
And when we say ‘financial advice’ we don’t just mean investment advice. We mean advice on how you can be making the most of your money, whether that’s to manage your money better, save more cash or make longer-term financial decisions. Our Advice Gap report highlighted that a staggering 21 million people in the UK would benefit from advice, but are unaware of, or unable to access, free services.
Whatever your circumstances, we can give you the advice you need to get clear direction on your finances. The advice in our free app can help you to manage your money better and to save more cash, and if you feel investing is right for you, our team of friendly advisers can give you personalised advice suited to your needs.
We’re more committed than ever to our mission to make financial advice accessible and affordable to everyone.
There are plenty of companies that will encourage you to set up an investment account or consolidate your pension with them, whether it's in your best interest or not. That's not us. We'll only ever tell you to invest with us if it's right for you, in fact, we only tell 23% of the people we advise to invest with us. Here's why we're not 'yes' people.
We want people to be life-ready
As we well and truly know by this point, life can be chaotic and unexpected. Losing a job or having something go wrong with your health or housing can drastically change your circumstances. Having an emergency fund of three months worth of expenses can help buy you some time to get you back on your feet instead of being knocked sideways! This is why we prioritise having an emergency fund over investing. It’s practical, but also does wonders for your well-being to know that you can handle any unexpected curveballs thrown your way.
We’re looking at the bigger picture
We don’t just view people as potential investors. We view people as people, each with individual financial circumstances. This means that with financial advice, one approach doesn’t work for everyone! Learning about your circumstances is important to us as it helps us map out your overall money journey. This means working out where you are now with your money and where you’d like to be in five or ten years. If you’d like to become an investor we’d love to help you get to that point, but we prioritise the health of your overall finances first. (For example, this might mean clearing debt to reduce late charges instead of investing.)
Investing isn’t for everyone
Investing involves risk, which can be a worry. When you invest you give your money the opportunity to grow in value, you also expose it to the risk of it going down in value too. If someone isn’t comfortable with the idea of their money maybe being worth less after the time that it’s been invested, then investing might not be for them. This is why we like to check that you’re open to the aspects of risk that come with investing as you consider it. So that you’re investing (or not investing) in a way that suits you best.
We’re a different kind of business
Financial advice is for everyone, regardless of wealth, and making advice accessible is our top priority. A lot of investment companies will allow anyone to invest, instead of checking in to see if investing is right for them first. We offer a view of your full money picture and then we let you know your best next steps. If that includes investing, great! But it’s not the end of the world if it doesn’t.
One of our financial advisors had a conversation recently that led to the person not investing with us but investing in their workplace pension instead, because it would be more beneficial to them. You can read about it here. What’s most important to us is that you’re on the right path with your money, and that’s at the heart of our financial advice.
We’re in this for the long-run
If you’re not ready to invest yet, we can still help. Our app can help you see exactly what’s happening with your money as you connect all of your accounts. From there, you can get tailored spending hints and tips to make the most out of your money and start saving. Wherever you are at with your money, we’re all about where you want to be and we’ll do what we can to get you there!
There are lots of age-old tricks companies use to get you to part with more of your money – from supermarkets to online shopping sites and even investment firms (not naming names)! We’re arming you with knowledge of just a few of the most popular tricks to help you avoid these pitfalls and stay in control of your spending.
There are a variety of different ways brands use scarcity marketing to rush you into a purchase. They can range from smaller tricks like ‘limited time only’ offers to a huge product like the famous McDonalds McRib or Disney Vault!
Some examples include:
Counting down how many hours and minutes you have left to get next day delivery
Alerting you when stocks are low or showing how many of an item are left in stock
Holiday sites telling you how many people ‘favourite’ a hotel
Flash sales and time-limited offers
Limited edition collections
These tactics are also used by investment companies around this time of year, with the end of the tax year approaching. A lot of investment providers start shouting about the 'ISA countdown', telling you to 'use or lose' your annual ISA allowance in a bid to get you to top up your allowance by investing with them before the deadline. Ultimately, the pressure tactics used by financial companies in their ads don’t have your best interests at heart and, and as with many of these tricks, you shouldn’t let them get to you. Unless you’re close to investing your full ISA allowance of £20,000 this year you can ignore the fuss of end of tax year. If you are, don’t panic! You still have time to research providers and make sure you make a decision that feels right for you. At OpenMoney, we can advise you whether investing is right for you and if it is, we’ll tell you how and where to invest.
There are lots of ways that supermarkets try to maximise your spend in-store. Look out for these examples on your next trip:
Essential items: Think bread, milk, eggs – these are often stocked further away from the entrance and apart from each other so you need to walk through more of store to get there and hopefully pick up items you didn’t come in for along the way.
Expensive items: The most profitable or most expensive items often sit in the middle of the shelf directly in your eye-line, and popular combinations will be stocked together to encourage you to buy both.
Impulse buys: One you may already know – tills are littered with small purchases to encourage ‘essential’ last minute purchases.
End aisles: We might be used to seeing cheaper deals at the end of the aisles but it’s important to make sure you’re actually bagging yourself a bargain and haven’t just been conditioned to think you will. People are 30% more likely to by items at the end of an aisle than in the middle! 
Sensory overload: Shops use sight, smell, sound and taste against you in a bid to get you to part with your cash. Smells like freshly baked bread can trigger hunger, causing you to pick up more than you came in for and free samples can encourage a purchase you hadn’t intended. Slow music can be used to slow you down and encourage more time in store.
When you’re shopping in store, we recommend making a shopping list and having a clear budget in mind – and avoid shopping when hungry!
Arm yourself online
The same goes for online sites, which have their own ways to encourage spending.
Sites will offer free shipping if you spend a certain amount, encouraging you to keep shopping and buy more. Amazon Prime and ASOS Premier delivery can be a great way to save on shipping costs, but these products are designed to keep you shopping more often so be careful they don’t end up costing you more in the long run!
It’s common practice now for sites to offer savings on your first order if you subscribe to their email list. There’s no harm in saving yourself some cash using these in the short term but beware – your inbox will soon fill up with deals and sales which can be hard to say no to. These emails are a double-edged sword. They could save you money if you see a sale or discount code for an item you were already going to buy but they can encourage more spending too. It could be worth unsubscribing when you’ve made your saving to avoid falling into the trap.
If you’re shopping online, it’s always worth looking at sites like vouchercodes.co.uk before you buy to see if you could save – Pouch is a browser extension that automatically applies voucher codes to your bag.
We’re hoping by lifting the curtain on some of these tips and tricks, you’ll empowered to make informed decisions about your buying decisions – good luck!
You’ve probably been taught that ‘if something seems too good to be true, it probably is’ – which is often the case, but not always. We get asked a lot why our fees are lower than others and it’s a very valid question. Especially in finance, scams are rife, and we encourage our customers to be wary. So, we’re going to break down how we are able to charge such low fees, without compromising on our service.
How did it start?
Our co-founders Anthony and Duncan have both worked in the financial industry for decades, so they knew first-hand that the majority of people weren’t being catered for. They wanted to create a company who make financial advice and investing affordable and accessible to all. We like to say we’re here for millions of you, not just those with millions – and we really mean it.
How does it all work?
We have qualified financial advisers, great tech and a fantastic support team. We use a mixture of qualified experts and technology to create a great balance between an online advice service and the ability to speak to real people! We balance expertise with the low overheads of technology, so that we can pass these savings on to our customers and open up the world of advice and investing to those who may have otherwise been priced out.
Does a small percentage difference really matter?
You may think a small percentage difference between providers won’t make much difference overall but remember the miracle of compound interest (small sums make a big difference over time)? It goes both ways. Just half a percent can eat away at your investments over time adding up to hundreds, if not thousands, resulting in you keeping less of your money - and that’s never something we’d feel comfortable doing.
Do I get less for my money?
No. Despite our low fees, we don’t compromise on our service. We also offer ongoing advice and our support team are always on hand to help out if you need it. Our returns aren’t bad either, check out our Q4 report to see for yourself.
Do you make any money?
This industry is full of those who take advantage of the consumer, charging high fees that eat into your returns; remember a lower fee means you get to keep more of your returns! Here at OpenMoney we of course need to charge a fee as we are providing a service, but we keep this as low as we can for our customers - our fees are also inclusive of VAT, so you won't find any surprises. Just last year when we rebalanced our portfolios, we made a saving on our fees and we passed this straight on to our customers, making them less than 0.5%*.
So that’s it - the simple reason our fees are low, is because we want them to be.
The end of the tax year is upon us! It’s a bit of a big deal in the finance world and so naturally there is quite a lot of chatter about it on social media. We get it, but to those who don’t live and breathe financial lingo, it might be a bit confusing. So, we’re here to de-mystify some of the key terms and phrases that you may see cropping up.
End of the tax year
The financial year differs from the calendar year in that it runs from April to April, rather than January to December. It’s the period of time in which all taxable activity, such as earning or investing is counted. This year, the end of the tax year falls on the 5th April 2021.
Trivia: The date of the end of the tax year has been the same in the UK since 1800, following a few centuries worth of events such as switching from the Julian to Gregorian calendar, and an unexpected leap year.
ISA stands for Individual Savings Account. It works in the same way as a standard savings account does, except you don’t pay any UK income or capital gains tax on it. There are several different types of ISA available, so you can make sure you’re choosing the right one for you. These include:
Stocks & Shares ISA Cash ISA Lifetime ISA (LISA) Junior ISA (JISA)
The government sets an annual limit on the amount of money you are able to deposit into ISA accounts during the tax year. The ISA allowance is £20,000. You can choose how you utilise your allowance, whether that be topping up one ISA, or splitting it across different kinds. However you use your ISAs, the total amount across these accounts cannot exceed the annual allowance.
‘Use it or lose it’
This is nothing more than a scare tactic, used by a few investment providers as the end of the tax year approaches. They do this to make you feel the heat and deposit as much cash as possible into your ISA. Keep in mind that you should only make full use of your allowance if it’s the right thing for your circumstances. For most of us, there’s no need to rush to max out our ISAs, you’ll still start the new tax year on the 6th April with the same allowance of £20,000!
Capital at risk
You may have noticed that we include this term on some of our social media posts. Capital is another word for money. Although it sounds harsh, we don’t use it to scare you or to ‘cover our backs’ in any way. It’s just a fact with investing – there is more risk involved in than if you were to leave your money in a savings account. That might seem daunting, but we have a full team of advisers on hand ready to help you make the right investing decision – even if the right decision is to not invest!
“OpenMoney" is a registered trading style of OpenMoney Adviser Services Ltd. OpenMoney Adviser Services Ltd is registered in England & Wales under Company Registration Number 09407280. Our registered address is WeWork St. Peter’s Square, 1 St. Peter’s Square, Manchester, M2 3DE. OpenMoney Adviser Services Ltd is authorised and regulated by the Financial Conduct Authority, our registration numbers are 676331 for activities regulated under FSMA and 792842 for activities regulated under Payment Services Regulations 2017.
With any investment your capital is at risk, investments can go down as well as up