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ILC-UK publishes new analysis to feed into FCA and HM Treasury Financial Advice Market Review


Ensuring policy and practice raises confidence in the provision of advice is key to increasing uptake, argues the International Longevity Centre - UK (ILC-UK) in their submission to the Financial Advice Market Review (FAMR).


The ILC-UK has undertaken new analysis of the Wealth and Assets Survey (WAS) (1) to feed into their submission. The analysis finds that:

 

  • Approximately 18.2 million people took out a financial product in the last two years, with nearly 3.1 million investing in risky assets.
  • Among the 43.5% who have taken out a financial product in the last two years, approximately 1 in 10 (11.2%) had been influenced by an Independent Financial Adviser. In terms of overall population, this is equivalent to approximately 2 million people.
  • Worryingly, 2.7 million people took out a financial product in the last two years without collecting any information at all.

The ILC-UK reveal that best buy comparison websites most influenced decisions about which product to take out, followed by information from providers.  In making product decisions:

  • 6.1 million people were influenced by “Best buy information, comparison website or shopped around a lot of different sources”;
  • Approximately 2 million were influenced by an “Independent Financial Adviser”;
  • Roughly 3.9 million were influenced by “Information collected from providers or providers websites”;
  • About 1.7 million were influenced by friends or family;

The ILC-UK analysis reveals that older (age 55+) consumers are significantly more likely to influenced by IFAs or providers, than by best buy information on websites.

Consumers who indicated IFAs as the most trustworthy source for retirement income advice, were significantly more likely to have been influenced by an IFA when choosing to take out a financial product.

Homeowners are also significantly more likely to be influenced by an IFA when choosing to take out a financial product. While only 1 in 16 renters (who have taken out a financial product) are likely to be influenced by an IFA, the proportion rises to 1 in 8 for homeowners.

There is greater awareness of the value of IFAs amongst those purchasing potentially risky investments. (2) ILC-UK find that the proportion of people influenced by IFAs doubles for people buying these products.

Consumers who are most financially able, i.e. those who report that they know exactly how much they have in their bank account, are also more likely to choose DIY financial solutions, by surfing best buy websites or shopping around.

The number of people not collecting any information or just relying on friends and family before taking out a financial product is large – about 4.4 million. Among them, older consumers (aged 75 plus) tend to be over-represented.

ILC-UK point out that those who are burdened by debt do not reach out. Among consumers who felt burdened by debt (approximately 17% of the sample), only about 1 in 8 (or 12.7%) received any advice at all to help them deal with their debts, and among them, 3 in 5 received advice from a free agency.

Cesira Urzì Brancati, Research fellow at the ILC-UK said:

The demand for independent financial advice is mainly driven by trust. We will not expand access to advice without action to raise trust in advice.

Sadly, advice too often does not reach those who need it the most. For some, however, overconfidence is an impediment to getting advice.

Making financial advice mandatory may not have good results. Experimental evidence from the US showed that unsolicited advice has no effect on investment behaviour – only those who want advice and ask for it will act accordingly.[1]

Our research highlights again the importance of Government and industry supporting a mid retirement financial health check. We need to ensure that people making important financial decisions in their 70s and beyond, get the support they need”.

On 1st December, the ILC-UK published Understanding Retirement Journeys, a report, supported by Prudential, which explored consumption in later life. In the report, ILC-UK called for the introduction of a mass market mid-retirement financial health check and financial advice. The Think Tank also called for the development of new rules of thumb to be built into the financial guidance process.(3)

Contact

Ben Franklin (benfranklin@ilcuk.org.uk) or Cesira Urzì Brancati (CesiraUrziBrancati@ilcuk.org.uk) at ILC-UK on 02073400440

Notes
1) The ILC-UK analysis takes advantage of the largest and most comprehensive source of information on income, wealth and assets in Great Britain, the Wealth and Assets Survey (WAS). The WAS is a longitudinal survey, which means that the same individuals are followed over time, and it is representative of all private households in Great Britain. For the purpose of our analyses, we focus on the latest wave, i.e. data collected between 2010 and 2012, and we keep only individuals aged 16+ who completed the entire interview. We are, therefore, left with a remarkably large sample of 37,601 observations.

2) By investments we mean an equity ISA, PEP, unit trust or investment trust, investment bond, stocks and shares or an endowment policy that was not linked to a mortgage.

3) See http://www.ilcuk.org.uk/index.php/news/news_posts/press_release_researcg_busts_the_myth_of_a_hedonistic_retiree_population
The ILC-UK response to the FCA and HM Treasury Financial Advice Market Review will be published on the ILC-UK website on 18th December 2015.
The International Longevity Centre - UK (ILC-UK) is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change. It develops ideas, undertakes research and creates a forum for debate.

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