1061. Insights: The advice gap: Are banks helping customers or protecting themselves?

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0:56Welcome to Fintech Insider Insights from 11FS. I'm Kate Moody. In this episode, we're exploring advice and guidance, but through a slightly different lens. Advice is regulated, personalized, and comes with responsibility. Guidance is broader, safer, and stopped short of telling customers what to do. But that distinction is starting to feel, well, a bit outdated. We're now seeing a shift in how financial services show up in people's lives. Apps are nudging behavior, surfacing insights, and increasingly shaping decisions in real time. And at the same time, customer expectations are changing. People aren't looking for products, they're looking for outcomes.

1:32So what happens when an industry built around selling products is faced with customers who want better outcomes? Today's conversation is really about that gap between what firms offer and what customers are actually trying to achieve. And right in the middle of that sits this increasingly blurry line between advice and guidance. So we're going to try and clear this line with our questions and discussion today. To talk all this through, first up, we have a very welcome return for Matt Ford, CEO and co-founder at Sidekick. Welcome back to the show, Matt. For people maybe haven't come across Sidekick, maybe give them a bit of a heads up about what you're focusing on.

2:04Of course. Thank you very much for having me back. So yeah, I founded Sidekick four and a half years ago to try and open up those financial advantages that typically only high net worths and private bank customers have historically had and to open those up more generally. So that is looking at a variety of different investment products, savings products, lending products, all those that traditionally would be packaged into a premium wealth manager, but do what Monzo did to retail banking, do exactly the same to the private banking space and make that much more accessible and available to the mass affluent client base.

2:38Awesome. We are definitely looking forward to picking your brain as we go through, so thanks for taking the time. And we are also joined by Tim Hogg, Director of Fair Finance. Big welcome to the show, Tim. Thanks for joining us. Again, would you mind giving our listeners a bit of an introduction to yourself and Fairer Finance, please? Yeah, thank you for having me. So I'm a behavioral scientist, which means it's sort of a focus on how we think about money and how we make our decisions. And at Fairer Finance, we're a consumer group working to make financial services fairer for consumers and the businesses that serve them.

3:10Fantastic. Well, yeah, I think this is going to be a super interesting discussion. So let's dive in. Okay, before we get into the advice versus guidance gap, I think it's worth stepping back maybe and asking why it might exist in the first place. Potentially this isn't accidental. Financial institutions operate in a heavily regulated environment, particularly when it comes to anything that looks like advice. And the consequences of getting that wrong are really significant. So in trying to avoid the risks of giving advice, there's an argument that the industry has ended up creating guidance that's intentionally vague.

3:42Matt, would you agree with that? how do you think we've ended up where we are today? I couldn't agree more that there is just a huge, huge gap. And I'm sure we'll come on to targeted support and all the regulatory initiatives that are changing. But this gap has been going on for a very long time. So I think RDR was kind of one of the main catalysts, really. So RDR was, what, 14 years ago now, and it was trying to clean up the industry. It was trying to make it more transparent, and it was trying to stop all hidden fees. But what it ultimately meant was that delivering advice to the people who really needed it, which is people in the middle who money has become serious and making poor financial decisions can have such a big impact on their long-term wealth and prosperity.

4:27Like they've been the ones to suffer. So yeah, I couldn't agree more that like there is a huge problem here. It's massively underserved at the moment. And unfortunately, regulatory changes have been part of the problem that thankfully there's initiatives underway to starting to try and address that again. Tim, what's your perspective on this? Again, would you agree with Matt or are there other components to this? Why has this become such a big problem? I would definitely agree that firms are quite risk averse and cautious in what they're willing to tell customers. And that does lead to a massive gap in the information that we're given in a really helpful way.

5:07So there's definitely a massive gap. I can sort of understand why firms are cautious, because if you step out of line, you could end up being hit over the head by the regulator. And that's not a very fun experience. And so everyone ends up being cautious and sort of if everyone else has been cautious, then there's not much incentive to be a bit more adventurous. And so we end up in this world where no one wants to be adventurous. And actually, that is bad for consumers. And it's also bad for business as well. So, yeah, we do sort of need the regulator to help cajole everyone to moving forward together, which is happening.

5:37And there's a few different places where this is happening. It's not just on advice and guidance. It's also on risk warnings at the moment. So often when you look at investments, there's that capital at risk warning. And, you know, we always hate the words capital at risk because it's jargon. And what does it mean? And it kind of looks scary and it puts us off. And the regulator is moving everyone. is successfully moving everyone to writing things that actually make sense and inform us a little bit better. But yeah, it has taken a long time before we've got to this position where everyone sort of agrees that, you know, the current state of play isn't working.

6:10And why do you think it has taken such a long time for people to realise there's an issue here? Like, it feels like we have been bumbling along with this advice and guidance structure for quite a long time. Like, have people known it's broken for a while and we're only just starting to build the momentum to fix it? Or, Doug, from your perspective, why do you think it's taken so long? Well, I think that's a really good question. I think partly it's just because what's top of the regulatory agenda at any given point in time? And currently we're in a moment where what's top of the agenda is why aren't more people investing?

6:39And actually that's a really important question and it's really good that it's at the top of people's minds right now. But that wasn't the question everyone was asking five or ten years ago. Yeah, and I was going to say to build on that as well, if you think the market cycles that we've been through, So if you rewind back to COVID, certainly no one was saying no one's investing. Why are people not taking enough risk? You know, we were seeing the complete opposite. But the macro environment has changed so fundamentally that, you know, where actually there were some of the breaks that were being put on were, oh, my God, do people know what they're doing?

7:14You've got all of these young people going into investments, not understanding risk anymore and are taking undue amounts of risk. like the whole macro environment has really pulled that back and I think yeah I couldn't agree more with Tim that you know I think it's certain things become in focus at certain times and and right now the country is sitting on way too much cash yet we are the ones who have the accountability to go and solve our financial futures and you know they're going to be they're going to be at risk unless unless that changes so yeah the agenda is shifting. Yeah no that makes So that makes complete sense.

7:49And I guess alongside those kind of macro trends in wider society, I think we've also got the enormous shifts as you alluded to, Matt, in just like the financial services space, right? And Monzo have kind of come in alongside other digital challenges in other parts of the world and set new expectations about what can be delivered through your banking app. So we're now starting to see experiences where apps share some insights with customers, maybe slightly more in that sort of in-between space between guidance and advice. So again, like you mentioned that you're trying to replicate what Monzo are doing, but in the mass affluence space.

8:25So what's your view on that? Do you think that actually these apps have kind of helped kind of shape customers' expectations or are they just delivering on what customers needed already? Yeah, I mean, I think we have very different challenges to a mass market retail bank. So I think, you know, what Monzo and others and Revolut did such a great job was they made transactional banking fast and frictionless and low cost and easy and digital and easier than ever to stay on top of your day-to-day spend. They haven't really tackled wealth and I know that they're starting to take tentative steps into that, but they really just made it faster, easier, cheaper to do your day-to-day painful banking and it was really painful obviously like 15 years ago.

9:10In wealth it's a different problem. Yes, it's still quite archaic in some ways, but But I actually don't think that it is necessarily just it's too archaic and it's too expensive, as in like from general wealth management perspective. Like one of the biggest problems is just like the cognitive load of trying to make really good, complex financial decisions, which you can take it back to education at school. But you also are putting a huge amount of weight on people to make actually very complicated choices, which, Tim, being a behavioral scientist, you know, you're fighting your own behavioral inertias and biases and educational kind of deficits in some ways, like putting all of that weight on the consumer to make a good decision and then navigate like the plethora of choices that's out there is a phenomenally hard task.

10:01task. So I think like the challenge that we face and the challenge I'm most excited about is that actually, you know, if the wave of fintech of 10 years ago was about empowerment, it was about access, it was about opening up and making it cheaper. Like in the wealth space, it's not necessarily just about access. It's actually about just helping people make good decisions. And often that is because like people are unable to make good decisions themselves and they need an expert to do that for them ultimately. And that's where obviously advice comes in. I think you've articulated that brilliantly.

10:31And I'm really annoyed that you've got the words like inertia and cognitive out of the door before I managed to. Because I think that explains so much, doesn't it? These are complicated decisions. And what do we do when we're faced with complicated decisions? Well, we often avoid them, especially if they make us feel anxious. And when we think about our wealth, we're thinking about the future, we're thinking about risk, risk of losing our money, this does make a lot of us feel quite anxious. And so it's bound to make us feel like we can put off the decision or we just take what feels like the safe bet, even if over the long term, it's actually the opposite.

11:08And I think you're right on helping people where they're at. I mean, we hear a lot in the news about improving financial education in schools. And I think that's probably a no regrets move. it can't hurt to teach kids more about money and how to save and spend and all the rest of it but let's be honest that's not going to shift the dial much because by the time you get to the point where you've got a bit of wealth that you're thinking about what to do with it's a long time since you were at school the world would have changed you know if I'd been taught about money at school I would never have been taught about crypto or buy now pay later so you know what I've been taught at school wouldn't have been worth much now so it's really about you know reaching people where they're at it's about the touch points where we already interact with them helping to make good decisions helping make good decisions easy that's really going to shift the dial here rather than you know introducing more lessons in secondary school yeah and i think that's definitely a fair point and i'm interested to get your perspective tim um on guidance as it currently exists like like is there a place for financial guidance like does it actually help customers do you see do you see it as having kind of benefits for customers to be given sort of statements like, you know, people like you typically save this much or you might be able to afford this purchase.

12:24Does anything like that actually really help customers? Or is it just something that the industry has started to do to try and make itself feel a bit better about not giving people advice? It can't hurt, right? But if we really want to change what people are doing, it's got to be more personalized than that. So in terms of informing the general decision-making environment, I think it can be really helpful. It can sort of shape the social norm, which does influence things. But if we want to nudge people to actually change what they're doing, you need to go beyond, well, lots of people save money.

12:56It needs to be a little bit more specific to you how much you could save, how much it's worth to you. Make it really real to people so that it's worth spending their time and scarce cognitive resources, thinking it through and going through the journey and all the rest of it. Yeah, absolutely. And Matt, we've seen lots of platforms start to introduce nudges. So kind of prompting people maybe to consider an action or take a step. What's your view on nudges? Do you think they are advice but maybe sort of watered down or what do you think the role of nudges is in this space? No, I mean, regulated financial advice is pretty clear from a regulation perspective.

13:41You know, it has to be personal I'm very specific to you and Heska to be a recommendation of a product that is deemed suitable. So the perimeter of advice is very, very clear. I think on the guidance, I think it's an interesting one though, because like advice and guidance, the industry terms that we're using customers at the end of the day, do they know the difference between guidance? Do they know the difference between planning? Do they know the difference between advice? They absolutely don't. And also, should they care either? No, because actually what they should care about is that their problem is solved.

14:17And we've kind of hidden behind a heavily regulated territory where it's very expensive and you have to be highly qualified to be able to be a full financial advisor. And then there's this unregulated space called guidance, which is a bit more gray about what that ultimately means. And often there's kind of a wall of what you can and can't do. So, you know, I think the perimeter is very clear. But one thing that I do think is really interesting, and I will come back to the nudges piece is, so we've been really looking at the space at the moment. So Sidekick is not a financial advisor at the moment, but we are actively, actively looking at this space right now because we hear time and time again that we can build and we do, we have great products that our customers are loving.

14:58And all we hear is just tell me which one I should have. And we cannot say that. We cannot say, for you, take this. and that's what we are consistently hearing. So we are spending a huge amount of time looking at this at the moment. But what is so interesting is that like actually when you tease out what the value of regulated financial advice or what a financial advisor does, only some of it is the advice piece. Because actually when you speak to an advisor, like the first thing that they're doing is they're just, it's a bit like therapy at the beginning. It's like helping you even figure out what you're trying to do and achieve and where you're going.

15:34because, you know, like some apps are just like, oh, enter your goal and how much and what's your retirement date. A lot of people don't even know those questions. So actually, like going back to it isn't just nudges, it's more like the softer side of helping people get to where they want to go. Like even just having that conversation, that's not regulated financial advice. That's just like helping people understand what goals that they have in life and what they need to achieve. And I think like there's a huge opportunity there of just helping tease that out and help people aim at the right things and at least get their head together on what they want to achieve.

16:09I was just going to add that another way that financial advisors help people in a soft way is they act as a layer of friction between you and your investments so that when the market goes down, you don't just immediately log onto your app and withdraw all your money because you've seen it go down, but you have to actually call someone and speak to someone who then reassures you and tells you, you said you didn't need it for 10 years anyway. that's not worry too much. You know, we'll speak in a month or two. And that sort of layer of friction, again, just helps, you know, it helps us moderate those impulses which aren't necessarily in our invest interest.

16:42A hundred percent. And I think that's the tie back to nudges in some ways, which is like, if you think about it, like what a financial advisor is doing is like that goalie bit. And then obviously they then do give you a very hyper-personalized product recommendation that's suitable for you. But then as Tim mentioned, they are then that insulation layer. but like nudges and you know things to help just make sure that you're kind of on track and broadly doing the right thing it's not necessarily financial advice but they can all be really powerful tools and the toolkit to ultimately kind of achieve achieve what you want to achieve yeah and i think that's a really interesting way of thinking about it quite often when we do our sort of research at 11fs we're trying to really take financial products and like deconstruct them to kind of think about like the jobs to be done that are ultimately be served being served for customers by taking out product or going on a certain financial journey and I think actually to apply that lens to financial advice as you started to do is really really interesting as you say like there is like the regulated part but then there are also as you say these kind of other really important soft skills which are kind of bundled at the moment into this advice journey which is not accessible to a lot of customers from a sort of price point perspective um I think the other part of this which I think maybe isn't like directly related but I think is part of the gap is around maybe some of the historical ways in which operating models, commercial models have been set up in financial services where actually how financial institutions make money has been quite obscured from customers.

18:11You know, it's about overdrafts or commissions on certain fees, like things which customers maybe have a vague awareness of, but there's not a direct value exchange for a service and we've started to see we see differences in different markets around the world about how financial services and products are sort of bundled and presented to clients but I wonder if maybe this might also be part of the the change which needs to happen in this space is that people start to actually pay for financial advice in a way that is really transparent like people can sort of make a individual decision about I want to pay for a service rather than it being something which is decided for you on the basis of, you know, am I as a financial advisor going to just make enough money off your portfolio to justify the time?

18:58It feels currently very nebulous. And I wonder if this is part of the problem that actually financial advice makes money off people rather than people necessarily like me being able to pay for it as a service. I don't know if that's kind of feeding into how you're approaching it. I mean, I definitely agree with some of that. I mean, there is just a fixed cost to running an advice firm that just means that it is unprofitable to serve clients currently beyond below a certain uh below a certain client size basically and that that's a fundamental problem and that comes back to the you know once upon a time when fees were not so transparent advisors would often get kickbacks and they kind of make it work in lots of other ways they can't do that anymore so they have to charge and that historically they've charged you know well one-time fee up front and an ongoing fee but like the industry is really still quite operational and quite manual.

19:48That's why I'm so excited about the space as well because, you know, technology can be a huge solve to drive out a lot of the historic costs that have just put in this prohibitive floor or ceiling or floor, whichever way you look at it, at which customers can get advice. So, you know, if you think about a financial advisor, they often have admin staff, para planners, There's all of these costs involved that just mean that less than 100 grand, it was really, really hard to make a living on it. But to have 100 ,000 pounds is a huge amount of money, like 50 ,000 pounds. And we've done some research recently and we found that the points at which people consider money's got really serious and they need to take a big financial decision is around 57 ,000 pounds.

20:35And that is way less than a financial advisor would get involved typically. So you're having to make really big financial decisions at that point without a financial advisor. It's not that they don't want to, it's just that most of the time it's just economically not possible given quite an, archaic's the wrong word, but you know, quite a manual, operationally inefficient way of servicing clients to date. Yeah, that makes sense. Tim, does that sort of number, 57 ,000, sound in line with maybe what you're seeing about where kind of that consumer appetite or need for advice starts to kick in? Well, I mean, based on my own personal experience, a couple of years ago, I thought, you know what?

21:14My dad has a financial advisor. Maybe I should have a financial advisor. I called one up and had a nice conversation where he explained that I was far too poor for him to be interested in, but I was tenacious and got some free advice out of him anyway, on what I should do, which he definitely shouldn't have done. But he mentioned, I think it was about 150k or 100k or something of investable assets. That's not just money you've got, that's investable assets. That's after your liquid rainy day fund and all the rest of it. I just left the call thinking, we know that this is a fraction of society.

21:47This is why only 9 % of people currently pay for advice. It's why there is this gap. At the same time, I'm fully on board with removing that slightly grubby commission-based model, which was leading to all sorts of problems pre-RDR. But we are left then with a problem, aren't we? Because there's loads of people who aren't going to get fully holistic advice and they're going to fill that through ChatGPT, money savings expert, whatever. Some of that will be brilliant and some of that maybe less so. Yeah. Okay, we're going to take a short break. But when we return, we're going to explore how we think the industry might actually close this gap or at least try.

22:23Let's give you a small spoiler. We're going to be talking about targeted support a little bit as well. trading at schwab is now powered by ameritrade giving you even more specialized support than ever before like access to the trade desk our team of passionate traders ready to tackle anything from the most complex trading questions to a simple strategy gut check need assistance no problem get 24 7 professional answers and live help and access support by phone email and in platform chat that's how schwab is here for you to help you trade brilliantly Learn more at schwab.com slash trading.

23:26Lou on Disney+.

23:32Welcome back. In the first half, we explored the gap between the products financial institutions sell and the outcomes customers actually want and how advice and guidance sit right in the middle of that. Targeted support is being positioned as a kind of middle ground here in the UK. Before we get into that, it's probably worth just quickly explaining what we mean by target support because it is quite UK specific terminology. It's essentially being developed by the FCA, the UK's regulator, as a middle ground between guidance and full financial advice. So instead of just giving people generic information, firms can provide more tailored suggestions, but based on groups of customers with similar characteristics rather than fully personalized individual advice.

24:08Matt, what's your initial take on Target to Support? Obviously, we can get into the nuances of it, but do you think this new initiative could genuinely help customers to achieve outcomes? Yeah, I really do. I really do. because I was saying before that that£50 ,000 mark is where money gets really, really serious. But it doesn't mean at that point that you probably have needs for complex offshore bonds and trust structures. And probably where IFAs really earn their keep, to be honest, is some of the more complex pieces. At that point, it's almost about de-risking the downside. It's about not doing things wrong.

24:49getting a core in and the core is still like it isn't as hard as you think but it really is if you're if you've got a full-time job and you're doing this on the side and you're just having a quick think about it and you're nervous about losing money like just not getting it wrong is kind of the the like the good starting point and some basic fundamental principles that can be applied at a cohort level um and we've been talking about this before targeted support was coming along, but it's like cohort led guidance to begin with until the regulatory initiative came in. But you know, cohort level piece at work can have a huge impact.

25:25And I'm sure Tim's got a great perspective from a behavioral perspective because you know, like social proofing and where you fit in and all this type of stuff is so valuable for people feeling like it's not necessary. They know that it's not exactly right for them, but that they know that it broadly feels about right. And it's broadly getting them in the rough direction where they want to get to. When we do surveys and sort of studies examining why people aren't investing, the question that we find really useful to ask is, do you think that people like you invest? And actually, the answer to that question can explain an awful lot of whether people invest or not.

26:01So it's that general perception. And we see quite predictable demographic splits between people who think that people like them invest and people who don't. and actually hopefully that might change a little bit. I really like your phrase of sort of cohort level advice. I always think of targeted support as a bit like public transport. So it takes a group of people from one destination to another and then you might get off the train at Liverpool Wine Street or something and then you go anywhere in Liverpool where you actually really need to get to. But the point was we took you from London to Liverpool and you're going to Anfield.