The size of the ‘advice gap’, the number of people who do not get financial advice, creates a significant risk that employees will seek to remain employed beyond the point where they are productive, because of inadequate retirement income.
Recent moves, such as the so-called retail distribution review (RDR), have raised standards among financial advisers, but also made their services far more expensive; they are now unaffordable to most employees. Emerging automated advice services, sometimes called robo-advice, are designed to help address the advice gap.
Most current services focus on helping consumers with savings decisions before retirement. While some may be offered on an entirely self-service basis, many benefits consultants and pension providers are looking to use these as a first-line offering backed up by human support. Although initially many such services have targeted consumers directly, the cost of attracting customers has meant that increasingly these offerings are being provided by traditional corporate advice and benefits firms.
Many of the early services are presenting guidance to individuals on taking financial decisions rather than formal advice. While guidance can still be beneficial to employees it lacks the statutory protection provided with formal advice, so, while both can be valuable, it is important to understand the difference.
Ian McKenna is director of the Finance and Technology Research Centre