The “advice gap” is an increasingly familiar term in the U.K. pension market. The phrase describes a shortfall between those who need or might benefit from financial advice and those who receive it. There is no single reason why the gap exists. Cost, accessibility and general inertia on the part of savers are all contributing factors. But businesses have also been viewed as not doing enough to support and encourage employee education and awareness. Concerns about meeting regulatory requirements for advice and personalized support may have dampened interest in providing education and advice.
A Financial Conduct Authority (FCA) Financial Lives survey study shows the scope of the problem. The October 2020 survey found that more than half of polled individuals (56%) said they either have low financial confidence or were only moderately confident.
These statistics might not be as alarming if those with low or moderate confidence were receiving financial help or professional guidance. But a similar FCA survey completed in early 2020 found that only 17% of adults with assets over £10,000 received advice the prior year, with a relatively low 29% saying they sought advice. Thirty-eight million adults are not receiving any sort of advice. These are critical statistics. Lack of confidence can lead to inaction, avoidance, poor decisions and significant financial instability.
But while raising awareness of the problem is important, how to take action is even more critical.
The same FCA study that shows the scope of the problem might also hold clues to the solution. Survey findings on the use of digital channels point to a growing use—across all demographics—of online and mobile banking. In the past, some felt that digital tools were no replacement for human interaction. Or for those who were less technologically savvy, transacting online was an anxiety-producing event. But thanks in part to the COVID-19 pandemic and the reduction of in-person experiences, digital has taken hold. The adoption of digital transactions in banking shows that a shift towards using technology for online financial advice is a real possibility.
Automated Advice: A Place to Start
Robo-advice is one growing area where automation can help overcome any limitations of in-person advice. Robo-advice platforms are generally low-cost, personalized, compliant and accessible. Yet, Statista’s 2022 survey found the number of people in the U.K. who have used Robo-advice is still low at 12%. In Australia, 7% use Robo-advice. While those figures are low, consider the uptick in the U.S. A late 2021 U.S. Financial Advisor survey found that nearly one quarter or 23% of Americans are using a Robo-advisor or an automated investment platform. Indeed, Robo-advisors in the US (according to CNBC) may soon manage more than $1 trillion of American wealth. That’s a significant trend.
Beyond Advice: Increasing Financial Knowledge
While Robo-advice may be a good opportunity to widen the availability of advice, it can be intimidating for those with a low to moderate level of financial comfort. Even if people can begin to trust technology as a replacement for a human, the content and terminology could be unfamiliar and therefore alienating. Enter education and support. The more knowledgeable a saver becomes about their financial journey and needs, the more empowered they become, and the better the outcomes will be. Consider the advantages that technology can bring to education and self-management of an individual's financial journey:
- Online or automated solutions are low-cost options that can educate and engage no matter the saver’s demographic, salary bracket or total wealth. Additionally, the 24/7 virtual nature of technology makes it accessible to almost all, from virtually any location, through a computer, tablet or mobile phone.
- Data and analytics have made modeling and personalized interactions a norm. Customization not only makes the guidance more relevant but also user-friendly and supportive. Easy-to-use tailored educational resources model changes in spending, savings and investments. The use of gamification, charts, graphs and clear visual elements help simplify many aspects of financial planning, helping consumers more confidently take control of their journey.
- And finally, digital solutions can incorporate protections to ensure compliance with various advice and guidance regulations. Well-designed capabilities can reduce compliance risk, helping to ensure that businesses that offer employees such tools are less likely to run afoul of regulators.
Importantly, new digital capabilities will not necessarily replace advisers. Quite the opposite. Digital options can stand in as economically viable, widely available alternatives to in-person advice, becoming a starting point to build trust and comfort.
With the right capabilities—ones that are accessible and easy to use—we can shift adults out of the low-confidence and moderate-confidence buckets and make them more active and confident drivers of their financial security. Broadening the lens on the advice gap and incorporating in-person and online advice along with sophisticated digital tools are key ways to close the advice gap and promote retirement readiness.
Financial Services Focus
Providers who combine global scope in the asset management, wealth management, and life and pensions/retirement industries with advanced technological solutions are well-suited to help close the advice gap. They are ideally placed to assess how actions and progress towards retirement savings in one market can be studied and modified for use in other markets. And they generally are deeply engaged with regulators and industry bodies, helping to shape the landscape of the future.
SS&C is actively working with global plan providers, advisors, and sponsors to develop data-driven financial wellness solutions that help increase end-user engagement and plan participation. Our team of professionals combines years of industry expertise with a proven solution set for optimizing actionable data.
Read more about why digital engagement is a must for the U.K. pension market or read more about the U.K. and Australia retirement markets in our "Common Goals, Converging Paths" whitepaper.
Written by Wade McDonald
Senior Director, Asset & Wealth Management