Advice gap or trust gap? Just 9% of people have a financial adviser

There are 11 million adults with pensions and investment products but no adviser.

Financial advice is still the preserve of the older, privileged few, as the ‘trust gap’ between retail investors and advisers widens, new research has found.

Boring Money’s Advice Report 2020 revealed that just 9% of British adults have a financial adviser, and more than half of those who do are over the age of 65. They are also wealthier, with the average advised portfolio value two-and-a-half times larger than the average DIY equivalent.

Around 28% of 8,520 people surveyed used to take financial advice but no longer do, which means there are 11 million adults with pensions and investment products but no adviser, the survey found.

Those who do take professional advice report being happy with the service they receive, however, with 90% saying they are satisfied and only 3% planning to move to a different adviser. Clients say they value aspects such as trust and the quality of their relationship with their adviser over technical elements like tax planning or investment management.

The Covid-19 effect

But Covid-19 is changing expectations for nearly a quarter of those surveyed, with personalised communication and regular updates increasingly important to clients in volatile market conditions. There is also growing demand for digital providers over the traditional advice firms, including automated services offered by banks.

Boring Money’s managing director Holly Mackay said one thing that stands out in the research is wide variation in the quality of service from advisers.

“Satisfaction levels remain extremely high although our detailed interviews suggest highly disparate levels of service,” she said. “Of those advised customers we interviewed after markets crashed, 26% reported having no contact with their adviser since lockdown started. Interestingly, customer appetite and acceptance of video calls has increased and now 63% of advised clients say that they would be happy to engage with their adviser this way.”

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The focus on trust among retail investors is echoed by a new paper from the CFA Institute, which found that only 59% of retail investors who have a financial adviser consider them their most trusted source of advice. This is a reduction from 65% in 2018. This “trust gap can be viewed over time in relation to the effectiveness of the investment advisory industry”, the report said.

No trust without value

To increase trust, the financial services industry must work on providing better Information, financial education and transparency. A mixture of technological innovation and the human touch that advisers provide will be key, the research suggested, noting that “trust cannot exist without value, and value creation without trust is unsustainable”.

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Other client priorities include a solid performance track record, better use of technology, professional credentials and a strong brand.

Younger people especially will be willing to pay more in future for customised products, and the ability to invest in line with their values, so advisers can no longer afford to ignore ESG and impact investing.

What turns clients off? High fees, underperformance and concerns over data security were the top three reasons for people to leave an adviser.