The four advice gaps – the missing benefit of money advice
- Author: Joe Lane, Policy Researcher
Have you ever had specialist advice on managing your finances? Or have you ever used a plumber? At a launch event for a pensions report last week one speaker said that while most people would ask an expert to fix their boiler, many avoid specialist help with their finances (the UK has five times as many plumbers as financial advisers).
At Citizens Advice, we see every day how important money advice can be for people’s lives. Successive governments have recognised this and aimed to to get more people to take free and paid for advice – this has included tackling an ‘advice gap’ between those who want to pay for advice and those who can afford it. Today we published new research that broadens the concept to highlight four advice gaps which cause people to miss out on the benefits of advice.
The problems with money advice
The Financial Advice Market Review (FAMR), which is currently underway, is a response to concerns that not enough people can afford money advice and that government backed advice (known as ‘public financial guidance’) does not provide value for money. We believe that to get the best outcome for consumers, FAMR should consider what can be done to tackle these four (rather than just one) advice gaps which are causing people to miss out on the benefits of money advice.
The four advice gaps
1. The affordable advice gap
The affordable advice gap is closest to what is generally considered as the ‘advice gap’. It affects consumers who want to pay for advice, but are either not able or not willing to at current prices. Our research found that up to 5.4 million people who don’t currently plan to pay for advice would consider it if it was cheaper. We also found that the size of that gap depends on the type of advice being considered and what that advice is about.
2. The free advice gap
The second gap we identified was the ‘free advice gap’. It affects those people who need money advice, or those who would benefit from it and don’t get it. While as many as 4.5 million people have had free money advice in the last two years, up to 14.5 million people who would have benefitted from advice did not, including 735,000 people who have tried to access free advice and not been able to.
3. The awareness and referral gap
A third gap we found was caused by a lack of awareness of the advice that is on offer and the absence of a system to refer people to the money advice they need. Up to 10 million people who think they would benefit from advice are not aware it is provided by the government. That is compounded by the fact that as many as 3.4 million of those people have raised money issues with a trusted professional in the last two years and were not offered help or directed somewhere they could get it.
4. The preventative advice gap
The fourth gap our research highlighted was caused by the lack of preventative money advice. Our experience of helping people with money problems shows that people rarely have money problems in isolation: 45 per cent of our debt clients have at least one other problem not directly to do with money. We found that not enough people are offered money advice at the times in their lives when they most need it and that when people do get money advice, the non-financial causes of their money issues are often not dealt with.
As the Financial Advice Market Review progresses, it is crucial that the provision of money advice is viewed as a coherent system and the complexities of the way people engage with advice are acknowledged.
Over the coming months we will be building on this research to explore in more depth the reasons people miss out on money advice and to better understand how to ensure that more people get the benefit of high quality money advice, as well as high quality plumbing.