The advice gap
I guess it’s appropriate to kick off a blog on personal financial education by discussing what makes people seek advice in the first place.
Although I consider myself fairly savvy on matters financial, I am nonetheless perfectly happy to seek the advice of professionals where I require their expertise. Sometimes it can even be the reassurance of confirming my own understanding of a situation.
In an ideal world everyone would have access to unbiased and affordable financial advice.
Unfortunately many, including some earning substantially more than the national average salary, fall into the so-called “advice gap”. These people need financial advice, but aren’t considered wealthy enough to be financially viable for advisors to provide them with a fee-based service.
This is one of the unintended consequences of the government’s Retail Distribution Review, which was designed to protect investors and savers from opaque commission structures on financial products.
How this works in practice though is that many high street financial advisors have withdrawn face-to-face services from those with less than £100,000 of investable assets. Indeed it is not uncommon for the threshold to be as high as £250,000: an impossible hurdle for many earning even pretty decent money.
According to the Financial Conduct Authority the average cost of financial advice is between £75 and £100 per hour, while an initial review could easily cost £500.
Even if you were able to afford the fee, it is quite possible that, if your means are limited, the advice might be totally unsuitable.
If you rock up saying that you are concerned about retirement income, you will be sold a pension, regardless of whether this is actually the best solution for you. If you have a low income you might find that your expensively acquired pension pot will achieve little more than rendering you ineligible for certain benefits, such as the pension credit top up.
This is why it is important to be able to make many of the more basic financial decisions for yourself and where financial education can help.
The good news is that this isn’t necessarily as difficult as people fear. Many of the concepts are pretty straightforward if expressed in a form that is not designed to automatically channel you towards a particular financial product. There is also an abundance of material out there if you only know where to look.
Going forward the idea is to regularly post on key issues related to understanding personal finance. These will be interspersed with tweets on the latest developments in the news in what is becoming quite a fluid situation.
These are early days, but over time I’ll be building a body of work that will allow people to confidently make many of their own critical financial decisions.
Take care out there
PensionMan