By Paul McNamara, CEO, EValue
An advice gap exists in the UK – and it’s leaving savers stumbling into poor financial decisions, without the right advice. The gap started in the wake of the 2013 retail distribution review (RDR), which resulted in advisers making their charges transparent for consumers – and putting people with low wealth off seeking advice. The gap widened in the wake of the Pension Freedom changes in 2015, which gave individuals more flexibility about taking income from their pension pots – and meant more people need advice and guidance to help guide their decisions.
A pensions advice endemic
Worryingly, this gap is affecting around a third of the UK population: a survey carried out by the Financial Conduct Authority (FCA) last year found that there are 18.2 million people who might have a need for advice, but haven’t yet taken it. Basic financial education is lacking: 34% of workers have a workplace pension but don’t know anything about it, while 79% of adults wished they’d learnt about finances at school. At the same time, the number of organisations offering financial education to employees has fallen from 41% in 2017 to 36% in 2018.
Cost is a major contributor to the pensions gap. High fees deter people from seeking financial advice, while advisers refuse to speak with those that have less than quarter of a million in savings and investments. This is leaving many people abandoned, without knowing where to turn for advice – and this is where technology can play a crucial role.
We’ve seen how sectors like retail and travel have changed the way they engage and serve customers using technology: £1 in every £5 is spent online. Four in five people book their holidays online, rather than in-store or over the phone. These industries now use technology as a core part of doing business and are seeing it transform their customer journeys and supply chains.
Change in financial services is less uniform. The way we make payments is radically different to how it was just five years ago. And the way payments and insurance businesses use technology is leading the charge. But many organisations in planning, long-term savings and investments are yet to embrace new consumer attitudes and advances in technology.
Complex relationships with work, finances and retirement
Although slow, change is happening – and the disparity between payments technology and investment technology is only natural. We have an undeniably more complex relationship with our long-term finances than with everyday transactions. From personal loans to multiple pension pots taken from multiple companies, we’re past the days of having a single final salary pension from one employer.
The state – and many businesses – no longer have a paternalistic attitude towards savings provisions. Instead, they’re willing to give people the access and control to shape their own finances. 2015’s pensions freedoms gave people greater access to their pensions, while the upcoming pensions dashboard project will let people manage their finances, rather than solely relying on their employer or the government. The introduction of auto-enrolment has meant 10 million more people are saving towards their futures too.
People aren’t just being pushed into taking more control. There’s a definite ‘pull’ going on, with more people moving away from businesses and the state for their financial security. Despite the state pension age getting later and life expectancy getting longer, millennials are planning on retiring earlier. Whether it’s following the Financial Independence, Retire Early (FIRE) movement, or saving, investing and working on side projects, their financial lives are increasingly complex.
With these huge changes to income streams, retirement expectations and pensions, people need financial advice and guidance more than ever. And many want more control over their finances and future too. But with basic – and workplace – education lacking, the advice gap has never been greater or more dangerous, particularly for those approaching retirement. If they make the wrong decisions, they potentially risk running out of money in retirement.
New approaches using technology
The combination of rising customer expectations, the growing need for advice and an influx of smart technology is creating a catalyst for much-needed change in the industry. And this is where technology can make a real difference. Application programming interfaces (APIs) can make complex calculations accessible to anyone, while tools and widgets can help improve communications and set expectations for consumers. This includes digital advice and guidance platforms, which give precise customer advice or guidance in an efficient way, while reducing the regulatory risk for the provider.
A platform that combines technology like APIs, tools and a stochastic asset model with third-party technology and automation elements can provide sophisticated and seamless advice. This combination supports end-to-end digital advice and guidance processes – which in turn provides people with the confidence and motivation to make better informed financial decisions around pensions, savings and investing.
What’s more, these platforms can provide up to a 90% reduction in the time it takes for people to get savings and investment advice, without stripping out any parts of the process. That means more customers can be seen, while also receiving better quality time with advising staff. A win-win all around.
I want to see more people receive better advice and, in turn, start making more informed financial decisions to help secure their futures. Technology can only help with this.