Millions of people are making major decisions about their finances without any professional help, often because regulated financial advice has traditionally been out of reach for those without significant savings.
But that could be starting to change. Advice firms are increasingly experimenting with lower-cost services, while new rules mean larger financial firms can offer tailored support to customers for free.
According to the latest estimates from the financial watchdog, just nine per cent of UK adults currently receive financial advice.
This has created a widening so-called advice gap between wealthier people who can access professional help and those left to make complex financial decisions on their own - but now lower-cost services could see millions more people benefit.
New research shared exclusively with The Independent from digital advice firm Dynamic Planner found that 54 per cent of advice firms are currently exploring lower-fee or flat-fee advice offerings, while two in five (41 per cent) are introducing low-cost or free guidance services.
The benefits of advice
While many families may feel that they won’t benefit from advice, or that they won’t make back what they pay in fees, data suggests otherwise.
The average household that receives financial advice is typically £48,000 better off in pensions and other investments than those that never get advice, according to research by the International Longevity Centre.
Even a small increase in the returns on your money can snowball over time.
If you put £10,000 into a savings account paying 4 per cent interest tomorrow, you would have £32,434 after 30 years.
If you invested that money into the stock market instead and made average returns of 7.5 per cent, you would have £66,144 after 30 years, even accounting for a one per cent annual advice fee. The FTSE 100 returned around 7.4 per cent per year over the past 10 years.
But it isn't just about investment performance. Financial advisers have access to a wide range of knowledge and products that could leave you better off long term.
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Martin Rayner, financial adviser at Compton Financial Services, said: “For regular households, financial advice can absolutely be worth it because the biggest benefits are often about avoiding expensive mistakes and building long-term financial security.
“A good adviser can help families budget more effectively, use tax allowances properly, put the right protection in place, invest consistently and create a realistic financial plan around goals like buying a home, retiring comfortably or supporting children financially.”
Low-cost advice offerings
Historically, financial advice firms have charged customers a percentage of their total investments on a regular basis, typically per year. For example, a regular 1 per cent fee on all the money that the firm manages.
But firms have started introducing new propositions where customers can pay a single flat fee, a single up front percentage cost, or a much lower ongoing fee.
In the past, advice firms say they couldn’t afford to do this, as the cost of running an advice business is high and firms needed to reserve their time for clients paying more money.
But artificial intelligence, alongside other changing technology, has started to make it possible to reach more people at a lower cost to the firm.
Mr Rayner said: “Historically, cost has been a barrier for some households, but AI and better technology are helping make advice more affordable and accessible by reducing administration and improving efficiency, allowing firms to support a much wider range of families.”
Advice firm Becketts is one that has created a new low-cost offering. The new firm, Becketts Connect, targets anyone with less than £300,000, with no minimum.
It charges a starting fee of £495 for its services, which includes a financial plan and review once every two years, while being on hand to answer questions where needed.
Mark Brown, who runs the firm, said: “These clients don’t need to meet two or three times a year, they just need someone there to help them make decisions. What that allows us to do is charge just £25 a month and help a lot more people.”
Advanta is another advice firm that has launched a cheaper offering, Advanta Direct, which typically charges a minimum fee of £1,000 per year for managing customers' savings and investments.
Mark Pearson, managing director at Advanta Wealth, said: “We are using technology to engage with the customers and monitor their needs so that if there is a point in time or a life event that needs full advice, we can offer them access to Advanta Wealth (full advice).”
Free financial support
For those who can’t or don’t want to pay for financial planning, a new kind of free financial support launched earlier this year.
Financial firms, such as banks, pension providers and investment platforms, are now able to offer “targeted support” - suggestions designed for groups of customers with similar characteristics, rather than full personalised financial advice.
This support is expected to help around 18 million people with their investments and pensions.
Royal London and Quilter are two firms that have already received approval to launch their own targeted support services, providing tailored suggestions to customers based on their circumstances, free of charge.
You should contact your bank or financial services provider directly to find out if they offer targeted support, or will be doing so in the near future.
When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.
