To seek or not to seek advice? That is the question.

According to studies by the Financial Conduct Authority, there is a staggering number of people in the UK who do not seek financial advice. This is known as ‘The Advice Gap’ and the number has been put at 39 million.

As an adviser with nearly 40 years in the business it does not necessarily surprise me that there is a great deal of reluctance. Much of the UK’s wealth resides with the Baby Boomers, many of whom can remember what financial advice used to be like in the 70s and 80s. The high levels of professionalism which exist in the industry today, were a thing of the future. Even as late as the mid 80s (when there was no regulation) one insurance company rep (I will desist from mentioning any names) cited that in his first job (in Swansea) one of his best producing ‘advisers’ was a butcher who also sold life insurance policies to his customers, presumably in conjunction with two pounds of mince!

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I have witnessed the complete transformation of this industry. The advisers of today are well educated and highly qualified people with, perhaps most importantly, a high degree of integrity. There is no resemblance to the ‘wild west’ of old but, of course, I have sympathy for any individuals (and there are many) who had a bad experience in the past.

But baby boomers with unhappy memories aside, there is still a great deal of misunderstanding about the value an adviser can add.

In 2022 the Financial Conduct Authority (FCA) conducted research and found that 60% of people with investable assets of £10,000 or more considered that they wouldn’t benefit from financial advice. Another survey by the Financial Services Compensation Scheme (FSCS) indicated that 23% of people felt they didn’t have sufficient wealth to warrant advice and 38% considered advice to be too costly and didn’t represent value for money.

What does value for money represent?

In stark terms this can be viewed as asking the simple question “would I have more money at the end of the day with or without and adviser?” and this is a fair question. Most ‘sceptics’ will simply look at portfolio returns only. Of course, performance returns are very important but in the context of holistic financial advice, it is only one factor.  

This point can be illustrated well by an experience I had with a client I had just acquired back in 2017, who was drawing down money from a pension and paying 40% tax for the privilege. The same client had considerable wealth held outside of the pension and by running cashflow projections, I was able to demonstrate that by directing the income away from the pension and taking it from pension investments, at the end of his life (assumed to be the life expectancy given his age) his estate would be over £300,000 better off. This was simply a tax observation and had nothing to do with the performance of underlying portfolios.

We would all be great investors if we had a crystal ball!

On the subject of portfolios there is also a tendency for would be clients to look at performance in the rear mirror and conclude that self-investing would result in a higher net return. We would all be great investors if we had a crystal ball! The most common trait of the amateur investor, particularly when markets are doing well, is to increase the risk of the portfolio and then, when a market crash comes, all of a sudden, those high performing investments are often the first to fall off a cliff.  

One of the responsibilities of a good adviser is not only to ensure that your money grows well but to ensure than when times are tough, you are sufficiently protected. This is particularly true for retired clients who are in the ‘decumulation’ stage, the point at which you start to draw on your retirement funds. They have worked hard all their lives to build up a pot for retirement and it must be structured in such a way that, if there is a market crash (and there will be one sooner or later), they can continue to draw an income without losing sleep. This can only be done by managing the overall risk and making sure there is sufficient ‘low risk’ investment in the short term to ride the market turmoils.

How to quantify the Value of Financial Advice

In 2019 the International Longevity Centre (ILC) conducted a survey to quantify the value of advice in monetary terms. Over the course of a 10-year period, on average, those who sought advice saw their wealth increase by a whopping £47,706, twenty-four times higher than the average initial fee for the advice.

It is not only the hard benefit of pounds and pence. A Royal London study examined the emotional benefits of having a trusted adviser on board. Peace of mind scored highly. Most people want to enjoy their lives without feeling anxious about their finances. 

A good financial adviser can often provide reassurance, particularly if a projection of finances (using cashflow tools based on cautious assumptions) indicates that life goals can be achieved.

Achieving one’s goals is like climbing a mountain. It takes preparation, equipment, skill and determination to get there, and I don’t know about you, but if I were taking on Everest, I’d rather do it with a good sherpa by my side!

Ultimately, it hinges on trust, and the industry has created a landscape populated by well-equipped advisers who are highly regulated, and duty bound to work in the clients’ best interests. According to the Langcat Report 91% of people considered their advice to be helpful and valuable.  

Some readers will be old enough to remember Red Adair. A colourful character, Red was the only person in the world capable of extinguishing raging fires on oil rigs (an alarmingly regular occurrence back in the 70s). He also charged accordingly and when challenged on his fees he replied “If you think it’s expensive hiring a professional, you should try hiring an amateur!”.

If you would like to learn more about how we can help, why not get in touch and speak to one of our qualified advisers for a free initial consultation.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

Investment returns are not guaranteed, and you may get back less than you originally invested. Past performance is not a guide to future returns.

The Financial Conduct Authority (FCA) does not regulate cash flow planning, estate planning, tax or trust advice.