Around eight out of every ten people that choose pensions in the UK do so without any advice being received from a financial adviser, according to a new report published today, that claims to be the claims is the “largest representative survey of individual and household assets in Great Britain”.
Despite the fact that those that sought financial advice ended up about £40,000 (US$52,000) better of than those that choose not to, less than 17% of people even bother with a financial adviser, according to the research, published by the International Longevity Centre (ILC-UK) and Royal London.
The research found that those who received financial advice in the 2001-2007 period had accumulated “significantly more” liquid financial assets and pension wealth than their unadvised equivalent peers by 2012-14.
However, despite the advantages of receiving advice, only 16.8% of people actually saw an adviser in the years 2012-2014. Indeed, even amongst those who took out an investment product in the last few years, around 40% didn’t take any advice, rising to 78% of people who took out a personal pension.
‘The Value of Financial Advice’, produced by ILC-UK with the support of Royal London, analyses data from what it claims is the “largest representative survey of individual and household assets in Great Britain”.
The report examines the impact of financial advice on two groups, the ‘affluent’ and the ‘just getting by’. The ‘affluent’ group is formed of a wealthier subset of people who are also more likely to have degrees, be part of a couple, and be homeowners.
The ‘just getting by’ group is formed of a less wealthy subset who are more likely to have lower levels of educational attainment, be single, divorced or widowed and be renting, the report said.
More liquid assets
The ‘affluent but advised’ accumulated on average £12,363 (or 17%) more in liquid financial assets than the affluent and non-advised group, and £30,882 (or 16%) more in pension wealth (total £43,245)
The ‘just getting by but advised’ accumulated on average £14,036 (or 39%) more in liquid financial assets than the just getting by but non-advised group, and £25,859 (or 21%) more in pension wealth (total £39,895).
However, the fact that just 16.8% of people actually saw an adviser in the years 2012-2014 is a “challenge” to the industry, UK government and regulator, particularly with almost 8 out of 10 people (78%) choosing pensions without financial advice.
Ben Franklin, head of economics of Ageing, ILC-UK said: “Our results show that those who take advice are likely to accumulate more financial and pension wealth, supported by increased saving and investing in equity assets, while those in retirement are likely to have more income, particularly at older ages.
78% of pensions bought without advice
“But the advice market is not working for everyone. A high proportion of people who take out investments (40%) and pensions (78%) do not use financial advice, while only a minority of the population has seen a financial adviser. Since advice has clear benefits for customers, it is a shame that more people do not use it.
“The clear challenge facing the industry, regulator and government is therefore to get more people through the “front door” in the first place,” added Franklin.
Sir Steve Webb, director of policy, Royal London said: “This powerful research shows for the first time the very real return to obtaining expert financial advice.
“Financial advice need not be the preserve of the better off but can make a real difference to the quality of life in retirement of people on lower incomes as well.”
The report also finds that financial advice led to greater levels of saving and investment in the equity market. The ‘affluent but advised’ group were 6.7% more likely to save and 9.7% more likely to invest in the equity market than the equivalent non-advised group.
The ‘just getting by but advised’ group were 9.7% more likely to save and 10.8% more likely to invest in the equity market than the equivalent non-advised group
Those who had received advice in the 2001-2007 period also had more pension income than their peers by 2012-14. The ‘affluent but advised’ group earn £880 (or 16%) more per year than the equivalent non-advised group.
The ‘just getting by but advised’ group earn £713 (or 19%) more per year than the equivalent non-advised group
90% satisfied with advice
The report found that 9 out of 10 people that did bother to seek financial advice are satisfied with the advice received, with the clear majority deciding to go with their adviser’s recommendation.
“What is most striking is that the proportionate impact is largest for those on more modest incomes,:” added Webb.”The evidence shows that when people take advice they are overwhelmingly satisfied and benefit as a result.
“More needs therefore to be done to overcome the barriers to advice.”
‘The Value of Financial Advice’ report concludes that the two most powerful driving forces of whether people sought advice was whether the individual trusts an Independent Financial Adviser to provide advice, and the individual’s level of financial capability.
he report makes a series of recommendations to raise demand for financial advice including: Using advice to support the auto-enrolled – placing more duty on employers to ensure staff can access the best information and advice on their pensions.
The report concluded: “Mandating default guidance for those seeking to access their pension savings – to ensure people can get crucial information in a complex marketplace and avoid worst outcomes. Helping to create informed consumers through continued development and roll out the pensions dashboard.
“Ensuring regulators continue to place emphasis on access to independent financial advice.”
To read the full report, click here.