Miss Mackay's Money Microscope: six routes to take for affordable advice
In his game-changing, pensions-freeing Budget back in 2015, chancellor George Osborne gaily announced there would be financial 'advice for everyone'.
Nasty hidden commissions are banned, pensions can be treated like bank accounts and everyone can get advice when they want it. Hooray! Except reality rained on this parade.
There aren't that many advisers (about 31,000 at last count), and hardly anyone wants to pay for them.
And although this bold claim about free advice probably worries Osborne less than finding a Budget surplus by 2020, it's sufficiently problematic for HM Treasury and the regulator still to be scratching their collective bureaucratic bonces, trying to work out a solution to this advice gap.
Brits do not want to pay for financial advice. In our April Census research report, we asked a sample of more than 2,000 people how much they would be prepared to pay for advice.
Just 8 per cent were prepared to pay more than £100 an hour. Depending on where you live, the going rate is nearer £120-£200 an hour, and most advisers won't take on a new client with less than £75,000 to work with.
So how to plug the gap? According to the industry, salvation lies in the beards of technologists in London's 'fintech' (financial technology) scene, who will harness technology to drive costs down, use clever algorithms (that's what PhDs call 'turbo equations') and add some convenience to the mix.
Here are the ways in which the advice gap - and the ensuing focus on using technology to plug that gap - could impact you:
ADVISER MEETINGS VIA SKYPE
In our survey, 38 per cent of people said they would be more than happy to get financial advice on Skype or some similar channel - avoiding the hassle of having to take the time to get to an adviser's office.
There are new emerging businesses which will make this commonplace for even the smallest adviser firms in just a few years' time.
For example, late last year, Yorkshire Building Society was one of the first high street names to change the nature of advised investments by offering customers the chance to get financial advice in their homes via video conferencing.
Appointments are available between 9am to 7pm, Monday to Friday.
'DO IT WITH ME'
The rather clumsily named 'Do It With Me' approach involves an adviser being available on the phone to help a largely DIY investor.
There are a few example of this around - Wealth Wizards, for instance, is a robo adviser in the pensions space that has real humans on the phone to take questions and guide people through the largely automated process.
This service is mostly targeted at (sold to) employers for their workforces.
What might this cost? Well, for a lump sum of up to £30,000, you're looking at about £65 each year for the advice, if your employer doesn't pay it for you.
For larger balances of £75,000 to £100,000, you will pay 0.3 per cent, which is capped at a maximum of £300 a year. An employer can expect to pay about £100 for each staff member. They summarise their service in three key steps:
- You tell us about yourself, your preferences and your experience.
- We use this information to create a personal investment strategy and explain why it's suitable for you.
- We review our advice annually or when you ask us to revisit your circumstances to make sure it's still the best approach for you.
Starting from a minimum of £65, this annual review feels like a good deal. Wealth Horizon is a different robo offer, where DIY investors get a good deal of handholding and an adviser available on the phone - all for 1 per cent in the first year and 0.75 per cent thereafter.
I hold a test account here and I'm paying 0.88 per cent all-in. That's 0.13 per cent for the underlying passive investments, 0.25 per cent for a custody/administration fee and 0.5 per cent for an advice fee - pretty reasonable.
I've only paid them a fiver since I opened my £1,000 test account last November, and I'm not going to grumble about that. Hell, I'm up a net 49p!
People receiving 'full fat' advice in a similar 'passive' investment strategy are more likely to be paying 1.5 per cent, although this advice will be broader and more comprehensive.
It's quite a decent service for people suffering from 'paralysis by analysis' and unsure where to start. I suspect Wealth Horizon, now owned by giant Aberdeen Asset Management, will provide an adrenaline shot and start to scale up before long.
FLAT FEES FOR ADVICE
Paying a flat fee for an advice package is becoming a more widely available option. The industry is collectively and quietly fretting about this one, as a percentage-based fee model which ticks on year after year is what makes finance directors smile and business valuations soar.
But if you just need help with one thing, why should you have to pay more than a single flat fee?
The chancellor announced plans for a Pensions Advice Allowance in the March Budget, which will permit people to withdraw £500 tax-free from their defined contribution pension pot before the age of 55, to spend on financial advice.
But some advisers have said £500 is not enough to pay for anything near a comprehensive appraisal of someone's pension affairs.
The pensions minister Baroness Ros Altmann has waded into the debate; she says that £500 is a 'realistic sum' for advice, and that she would welcome set prices from advisers for certain services.
'I'd like to see the industry design some kind of fixed-price package,' she says. 'Advice firms with lots of clients might think that would be really interesting - a basic advice service for £500, individualised, pre-approved.'
There are a few options open to people today. First, you are perfectly entitled to contact an adviser local to you and ask what they would charge to help you with a specific problem.
This might well suit Money Observer readers who tend to be an investment-savvy bunch, but who may not be up to speed with the latest pensions small-print.
Try unbiased.com or vouchedfor.com to find an adviser: don't be embarrassed to say what you need and see if they will quote you a one-off fee.
Secondly, there are online options with limited phone-based advice. LV= is a big name leading the charge here. You can get advice and a written pensions report for a one-off fee of £199. Surely this is what the future looks like for most of us?
FALLING FEES FOR DIY
Lower costs are very slowly trickling through. If you are paying more than 1.3 per cent including fund manager fees for an Isa or a pension (excluding the cost of any advice), you should be clear on why this is.
Cost is not the be-all and end-all of investment and it can be well worth paying top-quality managers to deliver consistently reliable outperformance, but make sure you're not paying top dollar for a bog-standard solution.
Take Junior Isas, for example. Some people are still in sub-par Child Trust Funds with iffy investment solutions and paying 1.5 per cent at least, when there is just no need.
GETTING FINANCIAL ADVICE AT WORK
I think this will bounce onto the agenda more and more as a mildly desperate government and financial services industry panic about getting Britain saving.
Despite the convenience factor of trundling off for some financial planning during your lunch break, people are still reluctant to pay for advice unless it is subsidised.
In our survey, we report that 31 per cent would only see an adviser at work if it were free and 24 per cent would see an employer-provided adviser if it were subsidised.
Interpretations of these statistics depend on whether you're a glass half-full or a glass half-empty kind of person. Only 19 per cent said point-blank that they would not be interested in seeing an adviser provided by work.
With stress and absenteeism at work increasingly connected to financial stress, and the ability to actually connect and engage with people woefully low, I suspect a bigger role for employers - with government backing and support - is imminent.
So there you have it. Financial advice provided by an unholy trinity of robots, bosses and the government. What could possibly go wrong?
Holly Mackay is founder and managing director of Boring Money.