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Consumers and Financial Advice - UK - May 2015

Published By :

Mintel

Published Date : May 2015

Category :

Banking

No. of Pages : 51 Pages

The importance of receiving financial advice has never been greater, and it is in the best interests of all parties to fill the advice gap in order to encourage people to become more financially aware and foster a more long-term approach towards savings and investing. This will prove especially challenging considering the economic recovery which the UK is currently experiencing, as credit levels edge upwards and savings ratios remain modest. Advice companies will have to look toward re-assessing their cost models and to innovate online in order to ensure that accessing financial advice is within reach of the average consumer.
Table of Content

Introduction

Notes on definitions
Note on consumer research

Executive Summary

Economic and market conditions
Regulatory changes
Pension freedoms push more consumers towards online sources of information
Rising regulatory costs may hamper hopes of innovation
The financial advice market
The number of financial advisers and advisory firms stays steady in 2014
Figure 1: Number of advisers in the market, 2011-14
Non-advised sales on the rise
The consumer
Banks and building societies are the most popular sources of advice for consumers
Figure 2: Financial advice usage, February 2015
Consumers who have used paid professional financial advice display the highest levels of satisfaction with the service
Figure 3: level of satisfaction with service, February 2015
62% of people expect to need financial advice in the future
48% of 25-34-year-olds expect to need advice on mortgages…
…while 26% of people over 45 expect to seek pension/retirement planning advice in the future
People who have sought professional advice in the past are more likely to do so again in the future
Figure 4: Future financial advice needs, February 2015
Younger people are more likely to require advice in more areas
Figure 5: Number of types of future financial advice needs by age
Consumers prefer the transparency of fixed fees
Online could reduce the cost barrier which keeps many at bay
Figure 6: Financial advice payment preference, February 2015
The industry must work hard to build trust among those on the fence
Figure 7: Attitudes towards financial advice services, February 2015
What we think

Issues and Insights

The advice market shifts towards advice and solutions, and away from products and sales
The facts
The implications
Changes in the market amplify the advice gap
The facts
The implications
Online tools can help lower the risk of consumer alienation with financial service companies
The facts
The implications

The Market – What You Need to Know

Average total weekly earnings growth has started to outpace inflation
Savings ratios remain steady in 2014
Low interest rates continue to push people towards equity-based investments

Economic Environment

Greater potential to save as average weekly earnings begin to outpace inflation
Figure 8: monthly change in rpi and average weekly earnings (regular pay, excluding bonuses), January 2009-January 2015
However, savings ratio remains steady in 2014
Figure 9: Quarterly change in UK GDP and household savings ratio, 2004-14
Consumer financial confidence improves at the start of 2015
Figure 10: Financial Confidence Index, January 2009-15

Regulatory Environment

The FCA outlines plans to increase advisor costs by 10% for 2015/16
Consumer demand shifts towards non-personalised sales channels
Changes in the pensions and mortgage markets elevate the need for advice

Companies and Brands – What You Need to Know

Providers are split on the benefits of consolidation
Concerns over product providers offering restricted advice
Government and third-sector bodies attempt to narrow the advice gap

Company Strategy

Some product providers are expanding their advice offering…
…but others are concerned about the risks in providing advice
Technology platforms - Online savings and investing platforms offer user-friendly alternatives
Savings and investing are the core business, but later-life planning is the future
Execution-only online mortgage sales could be a disruptive force to specialist brokers

The Consumer – What You Need to Know

Most people would rather manage their own finances
Banks and building societies are the most used form of professional financial support
Independent financial advice receives very high satisfaction levels amongst consumers
Most consumers expect to need financial advice in the future
Financial advice is perceived as being too costly
18% would be prepared to go online if it reduced the cost of advice
Some consumers are at risk of becoming alienated from the industry
Target Groups: The Advice-wary to the Open-minded

Attitudes toward Financial Management

The majority of consumers understand the importance of saving…
…and managing their finances
Figure 11: Attitudes toward financial management, February 2015

Financial Advice Use

41% of people have sought out professional advice
Advice from banks and building societies is the most common form of professional advice
Figure 12: Financial advice usage, February 2015
Financial advisers are more likely to be used by older people
Advice from banks/building societies and Money Advice Service (MAS) more popular with 25-34 year-olds than other age groups
Figure 13: Financial advice usage, by age, February 2015
Just 12% of people who are financially struggling or in trouble turn to consumer organizations
47% of people have not sought financial advice in the past three years

Satisfaction with Financial Advice

44% of people who received paid professional advice were “very happy” with the service
Figure 14: Level of satisfaction with service, February 2015
“You get what you pay for”: free guidance and pension freedoms

Future Financial Advice Needs

The majority of people expect to need financial advice in the future
Figure 15: Future financial advice needs, February 2015
Mortgage Market Review (MMR) – 48% of 25-34-year-olds expect to need advice on mortgages
Pension freedoms – 26% of people over 45 expect to seek pension/retirement planning advice in the future
Slim demand for advice on life/protection insurance
Financial advice clients tend to be repeat customers
Figure 16: Future financial advice needs, by Financial advice usage, February 2015
Younger people are more likely to require advice in more areas
Figure 17: Number of types of future financial advice needs by age

Financial Advice Payment Preference

Fixed fees are the preferred way of paying for financial advice
Figure 18: Financial advice payment preference, February 2015
18-24-year-olds show twice as much interest in paying an hourly rate for financial advice
Financial advice on demand, please
Figure 19: Attitudes towards financial advice, February 2015
People see financial advice as being costly

Attitudes towards Accessing Financial Advice

Most people would prefer to receive financial advice online rather than face-to-face
Figure 20: Attitudes toward accessing financial engagement, February 2015
Over a fifth of users would check online reviews before using a particular adviser
Higher earners show greater preference for face-to-face advice than other income brackets

Attitudes towards Financial Advice

The majority would only use a financial adviser who describes their services as ‘independent’
The industry must work hard to gain trust among those on the fence
“Do it for me” vs “Help me help myself”
Figure 21: Attitudes towards financial advice services, February 2015
Alienation with financial advice
44% of consumers are confused as to how financial service firms can help them manage their financial affairs
Figure 22: Attitudes towards financial management, February 2015

Consumer’s Confidence in their Financial Decision-Making

Most consumers are confident about making their own financial decisions…
…but less so when it comes to big financial choices
Figure 23: Attitudes toward financial management, February 2015
Consumers display a fair amount of cynicism about financial advice
Figure 24: Attitudes toward financial management, February 2015
Target Groups: Segmenting the advice market: from the Advice-wary to the Open-minded
Figure 25: Target groups, February 2015
The Open-minded: Open to advice but confused as to how to get it
Face-to-face meetings are the best way of engagement
Figure 26: Attitudes towards accessing financial advice, by target group, February 2015
The Financially Self-sufficient
Pensions and retirement and tax/inheritance planning advice appeals to the Financially self-sufficient
Figure 27: Future financial advice needs, by target group, February 2015
The Advice-wary: The Nervous Planners
The Advice-wary: Carpe Diem
Costs and trust are the main barriers for this group
Figure 28: Attitudes towards financial advice, by Target Groups, February 2015
The Financially Apathetic

Appendix

Abbreviations

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