What triggers consumers to either seek out, or fully engage in, financial advice is an area of confusion in financial services. Yet, the reality is that it is remarkably simple.
There is an increasing emphasis upon understanding the value of advice and most reports conclude that advice does indeed create value. What they often do not do is provide insight into what the consumers value.
The Value of Advice Report 2012 by Standard Life (United Kingdom) reaches similar conclusions to other reports of a similar ilk, however it provides some interesting insights into why customers seek financial advice at all.
A sobering and potentially alarming statistic that is given prominence in the research is that only 18% of UK consumers have sought advice from an independent financial adviser.
Bear in mind though that an “independent financial adviser” in the UK is a restricted term, and there will undoubtedly be a far higher proportion of the UK consumers who obtain financial advice from other professional advisers who cannot meet the UK regulators definition of independence.
The research does divide consumers into two groups though, being the “advised” (by independent financial advisers) or falling into the larger catch-all group of “non-advised”. Perhaps the report might be more accurately labelled “the value of independent financial advice“, as independence is clearly a dividing line in this piece of work. That is not a criticism of the work incidentally, but given that the “non-advised” group referred to must include consumers who have in fact received financial advice from other professionals who do not met the “independence” definition it follows therefore that the value of receiving any professional financial advice is not really captured in this research.
Despite that, it is conclusively shown that consumers receiving independent financial advice have more financial products; stronger self provision and savings levels; and; have greater financial literacy and awareness. The ultimate test as to whether the financial advisers are making a positive difference is addressed with the stark conclusion that professionally advised consumers have twice retirement funding levels of the non-advised.
This makes 2 powerful arguments for anyone interested in professional financial services:
1. Consumers have more personal security and a greater likelihood of achieving their retirement objectives if they work with a professional independent financial adviser.
2. Financial advisers will be better equipped and far more likely to meet their customers needs by raising their standards of education and objectivity to the standards of independence expected by regulators.
The issue of independence, and what it means or how it is defined, is not the most interesting facet of this report however. Exploring the reasons behind what triggered consumers to seek the independent advice provides particular insight for us as a profession, especially from the perspective of understanding what customers want us to address if we ARE to provide value to them.
Retirement planning is the single biggest trigger for consumers. Driving them to obtain advice was the need to get help maximizing their entitlements, determining the financial objectives that ensure their retirement is what they want it to be, and then helping them design strategies and plans to give them a greater likelihood of achieving the goals.
Closely correlated was the need for assistance in understanding savings and investments, and selecting appropriate products. Product complexity (beyond just investment) was also a key driver in seeking professional assistance. This is perhaps best highlighted by the incidence of consumers holding income protection insurance policies. Of the advised consumers, 9% have income protection policies whereas only 3% of the non-advised do.
Product complexity and increasing market and product sophistication are key drivers for seeking financial advice. Overwhelmingly however, consumers are motivated by some fundamental needs-based objectives: they want to live well and wish to be self sufficient if possible.
The greatest value that financial advisers can provide therefore is to help consumers achieve these core objectives.
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