As this year’s exam results season draws to a close, hundreds of thousands of school and college leavers around the country are rushing for university places and preparing to move out and fend for themselves for the first time.
A little over twelve years ago (has it really been that long?!) I was doing the same – rocking up at university with some mediocre A Level results, a sizeable student loan and a brand new bank account. Exciting – except I didn’t have a clue how to make any of it work.
Having grown up in a single-parent household where there was barely enough money to top of the electric metre, no one had ever taught me how to budget. All I knew about money was that other people had it, and I didn’t. In school, we weren’t even taught to manage money or pay bills, let alone save for the future.
Not surprisingly, I made a lot of very expensive mistakes during those first few years of supporting myself, and I have only recently (at the age of 30) started paying into a pension. But things weren’t as bad for me as they could’ve been, had I been born a decade later.
My tuition fees were around £3K a year – a measly sum compared to today’s £9k+ – and rent was vaguely affordable back then. Now, London rent prices have increased by a staggering 77% in the past decade, while inflation has driven up the cost of living exponentially. Even after young people leave university, they’re entering a highly saturated job market where the average graduate salary equates to just £384 per week. How are they supposed to save for the future with so much stacked against them?
With the hope of presenting a less gloomy picture, I turned to Head of Propositions (and all-round investment platform guru), Chris Smeaton to explore the problem further – and hopefully highlight some potential solutions…
So, Chris… Is the advice gap really that much of an issue, or are millennials and Gen Zers just eating too much avocado on toast?
There really is a problem, and unfortunately young people are by far the most affected.
Historically, the financial services sector has catered to the very wealthiest clients, which tends to be the older generation, meaning millions of young people miss out on the help they need – whether that’s ‘capital A’ advice (i.e. financial planning provided by a regulated financial adviser) or just general financial education. They fall into the advice gap.
I’ve always found it depressing, and kind of ironic, that the very people who could most use financial advice are the ones least able to afford it.
It’s just an economic fact of our industry that the wealthy sit at the very heart of it – long term financial planning requires a certain level of investable assets, after all.
But the problem isn’t unsolvable. One of the reasons why advisers can only take on clients with, say, £100K worth of assets, is that they’re using vast amounts of time and energy and an array of tools to deliver their services. Research from 2019 found that most advisers use as many as five different systems in the delivery of standalone advice – many of which don’t easily talk to each other – and that advisers could double their assets if they switched from legacy software.
All of this makes sense, of course, but it’s pretty sad. The status quo is that we’re essentially failing an entire generation, most of whom are more likely to be racking up debt than paying into a retirement fund.
So, it’s clear that the financial advice gap exists. Can we start to bridge it?
Yes, we can. But for me, this isn’t an issue for advisers to solve – or certainly not on their own. This is predominantly a tech and education challenge, but the two things are not mutually exclusive.
At Seccl, we’re trying to share the message that with efficient, streamlined technology, advisers are far better placed to start saving on their overheads and working with a whole new generation of clients. I think the pandemic has forced many of us to become more reliant on technology, and advisers and DFMs are starting to leave those paper-and-ink-based systems behind, which is great.
To use one of our clients as an example here, JustFA is an affordable, online adviser and investment manager that managed to keep the cost of their platform, advice and DFM to 1%. This goes to show how improving efficiency can drive down cost.
It’s also easier than ever for advisers to manage clients with different charging structures on the same platform and switch them over at the touch of a button – giving them a hassle-free way of, say, working with younger family members or clients who are less affluent, but who could be the core client bank of tomorrow. It doesn’t take an oracle to see how these kinds of models could lower the asset threshold for other advice businesses!
So, new and emerging technology (like APIs, which you can learn more about in our Advisers Assemble! paper) can significantly reduce admin time and costs for advisers, allowing them to reduce their fees and lower their asset thresholds.
Sounds great. And what about financial education?
As a society, we need to find ways to lower the barriers to financial education – not only because young people in the UK are navigating such an unstable financial landscape – but also because if we lose the state pension (and arguably even If we keep it), people are going to need to start saving for retirement younger and younger.
It would be great if financial literacy was baked into the education system – but you know what young people are most likely to engage with? Technology. They’ve been using it their whole lives.
There are some great real-world examples of how the younger generations are leading the charge on the technology front. Just a few weeks ago, during our Summer Digital Bootcamp, students managed to set up financial education apps in eight weeks using low and no-code software.
The teams used platforms like Instagram and TikTok to share information about saving for a home and pensions, in a way that young people are able to really engage with (lots of gifs, memes and animation!).
Last year’s cohort also created an app-based game (a “friendly adviser” called Diego) to encourage young people to invest. There have been some understandable concerns about gamifying investments in the hope of capitalising on a younger target market – the GameStop/Reddit events of last year being a prime example of the high risk/high-reward model. But it’s basically impossible to put yourself in the shoes of your sixty-five-year-old self when you’re in your teens and twenties – and, when used in the right way, gamification can boost financial health and engagement significantly
Our fintech clients are also opening doors to younger generations. Wombat – for example, allows customers to sign up in minutes and start a portfolio with as little as £10; clients can invest in a wide range of themes that they might be attracted to, all of which can be managed and tracked using the app – while Multiply offer fully regulated financial advice costing just £1 per month, (with a 0.3% ongoing charge to the portfolio).
Meanwhile, Pension providers like Penfold and Raindrop are also making it easier than ever for the growing self-employed workforce – or younger people starting out on their pension path – to save for retirement.
Lastly, young people tend to care deeply about current social, economic and environmental issues, arguably more so than an abstract financial future. Companies like Tumelo are empowering young people to engage with their investments in a way that hasn’t previously been accessible to them – by exploring the ethical impact of the companies they’re invested in. For the first time, young people have a voice – according to Tumelo they can “use their pension power to put global issues right.”
Thanks Chris - that’s reassuring. Any closing thoughts?
The advice gap won’t disappear overnight, but there is an increasing number of innovative young fintechs – and technology-minded firms – working to rebalance the scales. Reducing the barriers to education and advice is a big part of our mission statement at Seccl, and it’s at the heart of everything we do.
Financial education should be accessible to everyone, and clients of all levels of affluence should be able to save for the future and benefit from compound growth, much the same as their grandparents did.
As we move into the next decade, we need to use all the tools in our arsenal to bring financial products alive so that everyone can access them – not just the privileged few.