Consumers resigned to getting poor advice says Panel research
The Consumer Panel is today publishing consumer research, which it commissioned to inform its response to the FSA's Retail Distribution Review. The research looks at how consumers react to some of the presumptions set out in the Review.
John Howard, Chairman of the Financial Services Consumer Panel said:
"Our research shows that the financial advice market is in urgent need of change. At the moment consumers are generally confused about the type of advice they are receiving and, appalling though it may seem, many people are now simply resigned to not getting the best advice when they talk to a financial adviser. The FSA's Retail Distribution Review must establish truly independent advice and clearly distinguish it from mere sales. The research also suggests a pent up demand for a properly funded and promoted generic advice service. This would act as a trusted gateway to financial services for the many consumers who lack confidence in the system, or their own ability to engage with it."
The main conclusions of the report were as follows:
- The current advice framework is characterised by a good deal of confusion. Most consumers do not distinguish between different types of adviser when talking about or referring to financial advice. Many consumers described advice they had received as independent, even when the advice was provided by a tied financial adviser or even by bank sales staff;
- When prompted to think about the kinds of financial advice available, the majority of consumers understand that many ‘financial advisers’ are not independent. Consumers are aware that many advisers get paid via commission from product providers and therefore can't be truly independent. However, the concept of financial advisers' independence is not a ‘top of mind issue’ for consumers;
- Many consumers don’t understand the implications of the lack of independence of financial advisers. They do not see, unless prompted, that if they had been told about a better product they may have got a better return;
- The main reasons for consumers to use an adviser are because they provide an easier and more convenient route to finding the best place to invest money. Also many consumers like to engage with someone and to be able to discuss their financial situation with another person who has more experience of the financial market than them;
- The key barrier to seeking advice is the perception that there is no value to it. This is driven by both attitude and circumstance. Attitudinally, the less financially experienced or knowledgeable do not appreciate the value of advice, because there is a perception that financial advisers are not for them; that they are only for rich people. Conversely, many of those who are financially sophisticated and particularly well off feel they have sufficient knowledge to manage their money themselves, or are more knowledgeable than the financial advisers themselves. They also enjoy researching and making financial decisions. The majority of consumers in the research commented that they would only seek advice for ‘life changing’ amounts of money i.e. if they had £20-30,000 they would seek advice but if they had £5-10,000 they probably wouldn’t. This response is mainly driven by the fact consumers believe that for a ‘smaller’ amount of money there doesn’t exist sufficient scope or options for investment that will make a real difference to the returns they will get. Accordingly, they surmise, there is no real point in seeking advice;
- Generic Advice could encourage those who lack financial experience to seek advice. It may also encourage those consumers who don’t see the value in seeking advice for smaller sums of money to seek advice. Generic advice can play a vital role in setting up consumers’ expectations and educating them about the rest of the system, and what tier of further advice is appropriate to them;
- In its current format Generic Advice will struggle to be top-of-mind for consumers. It must be widely and heavily communicated and be more accessible and advice led than currently proposed, in order for it to become more important in consumers’ minds.
The Report - "Exploration of consumer attitudes and behaviour with regard to financial advice and the implications of RDR proposals" was undertaken by GfK NOP towards the end of 2007.
- The FSA established the independent Financial Services Consumer Panel in December 1998 to advise its Board on the interests and concerns of consumers and to report on the FSA’s performance in meeting its objectives. The Consumer Panel has statutory status.
- The emphasis of the Panel’s work is on activities that are regulated by the FSA, although it may also look at the impact on consumers of activities outside but related to the FSA’s remit. More information about the Panel's work is available on this website.
- The Consumer Panel brings together a wide range of relevant experience. This includes financial services regulation, working with vulnerable consumers, consumer protection, consumer education, front-line money advice, legal expertise, competition policy, public policy analysis, market research and media.
- There are currently twelve members of the Panel as listed below (for further information on individual members, see the Panel's website – www.fs-cp.org.uk)