13th October 2011
The consequences of this change are myriad, but the consensus appears to be that fewer people will have access to financial advice as a result.
This comes at a time when people need to know more about their investments. Final salary pension schemes are ending, leaving investors with contribution-based or personal schemes. Either way, they will have to know more about investments to secure a decent income in retirement. Equally, life is simply getting more expensive – tuition fees being a notable example. Increasingly people need to invest to be able to manage these expenses.
Surveys suggest that people still don't believe that they are receiving adequate information on their financial arrangements. This has some potentially difficult consequences. As this survey shows, almost half of people don't know how their pension is invested and over a third simply chooses the default option.
This survey from the Platforum highlights some consumer attitudes. It shows more people now use the Internet to research investments than use financial advisers. It also shows that investors are increasingly using platforms rather than going direct to the fund management companies.
Who is doing what to educate consumers? Much consumer-focused financial advice is centred on debt. However, the Money Advice Service has now replaced the Consumer Financial Education Body (CFEB) with the remit of helping people make informed decisions about money, including investment. This has handy things about financial planning at different life stages, but little about the cut and thrust of investment.
The people doing most to educate consumers are – perhaps unsurprisingly – those with the most to gain. The Hargreaves Lansdown site, for example, is a mine of information on everything from risk profiling to inflation to regular savings. Similarly, Chelsea Financial services provides recommended fund lists, client education tools and more.
But it is happening through social media as well. Increasingly financial advisers are popping up on consumer websites such as Money Saving Expert to answer consumer questions. This helps them promote the ‘brand' of financial advice. A number of financial advisers have taken to offering advice on key personal finance subject areas on YouTube.
Mindful Money blogger Kim Stephenson makes the point that creating more financial experts should not necessarily be the real goal of expanding knowledge. He says: "The official idea is training in "financial capacity". It is the theory (that they are trying to put into schools) of teaching people about the technical side of finance. To me that's cart before horse. The bankers etc. were supposed to be experts in finance, and they actually proved to be awful at it. If we trained every consumer to be as good as a bank leader, is it going to help the economy or any individual – and is it realistic to expect every person to become a "finance expert" like Fred Goodwin or Gordon Brown?
He believes people need to understand what money can do for them so they use money as a tool and a means to an end – not as an end in itself: "If we stopped trying to ram technical details down people's throats and started thinking about why, for example, kids of 6 can use an I-phone which is very complicated, but very few people understand pensions (which, I would suggest, are probably very little, if at all, more complicated) we might realise that it is motivation that is important. People can learn complex technical stuff if they have a motive to do so, but most financial stuff is seen as boring, seems very complex and strikes most people as divorced from their day to day lives."
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