Updated 30 March 2022
The pandemic has increased people’s demand for pension advice they can rely on, according to new Unbiased data. But with many still suspicious of advice, how can you tell the difference between a genuine financial adviser and salesperson? Article by Nick Green.
2020 was the year of ‘I just don’t know anymore.’ Certainties that we’d all taken for granted were suddenly all up in the air. We saw it in every walk of life – and we also saw it, strikingly, in the way people sought independent advice on their pensions.
Millions use Unbiased every year to read free guidance about their finances or search for impartial professionals to help them. And as we pass the anniversary of the first Covid lockdown, we can look back and see how the pandemic changed people’ financial advice needs.
Previously, most people seeking a pension adviser would enquire about a specific service or product type. The top searches in 2019 were for pension transfer, pension review, pension drawdown and pension consolidation. People can also search simply for ‘pension & retirement planning’ if they aren’t sure what they want, but in 2019 this enquiry was relatively unpopular, ranking eighth in the list.
But in the 12 months from March 2020, searches for ‘pensions & retirement’ planning increased by a massive 65%, overtaking all the others to become the most popular financial advice enquiry. Why? One explanation is that where people previously approached their IFA with a general plan in mind, now they had little idea of what to do with their pension. What they needed now was simply to place their trust in an expert who could give them a steer at this bewildering and stressful time.
Kay Mechial, financial adviser of Black Lion Wealth, was among those who saw this change happening in real time. He found that people who contacted him had an increasing need just to talk and discuss their finances, and to seek out an expert opinion that they could trust.
Kay reveals, ‘Our experience over the pandemic is that people are more willing to seek out and receive good quality financial advice. We’ve seen almost 50% more interest compared to the year before Covid, which suggests to us that there was a real need to speak to an adviser among many people, as well as commitment to tackle their financial concerns.’
In particular, Kay and his colleagues have seen an increase in the number of people anxious to check their pension savings or find the best ways to access them. He adds, ‘I think the most important trend we found was the clients who were new to financial advice, and initially felt that they’d been forced by circumstances to do this, but who ended up enjoying the process while picking up some fantastic value along the way.’
Kay is convinced that trust plays a crucial role in the advice process. He found that, initially, a lot of people didn’t have a clear idea about what advice they wanted, and simply wanted a chance to discuss their finances with an expert. He is generally happy to do this, as when large sums of money are concerned, people need to feel fully confident that their adviser knows them and understands their needs fully. Once that is achieved, the adviser can earn their trust and start to provide the advice that person needs.
‘People’s general financial knowledge has significantly improved over the years,’ he says. ‘We are now almost facilitators and consultants rather than simply a means to an end transaction.’
Unfortunately, many individuals with a real need for financial advice are still missing out on it. Awareness of financial advice in the UK is still relatively low – just 38% of adults say have seen an IFA in their entire lifetime, according to a new report by My Pension Expert. But an even more concerning finding of the report is that 57% of people ‘don’t trust’ financial advisers – rising to 65% among the over-55s. Meanwhile 75% of respondents considered that financial advice is too expensive, and as many (76%) said they were confident enough to make their own financial decisions. One in five people (18%) said they had lost money as a result of following a financial adviser’s recommendations.
Taken at face value, these would be damning statistics. But examined more closely, they reveal something more interesting, and even more concerning. For instance, if 57% of people don’t trust IFAs, but only 38% have ever seen one, then a high proportion must be basing their mistrust not on personal experience but on what they’ve heard or read. Their sources may therefore not be reliable.
A yet more dubious figure is the claim that 18% of people have lost money as a result of seeing an IFA. If only 38% of people have seen an IFA at all, then this implies that nearly half – 47% – of all IFA consultations result in a loss of money. This would make financial advice no better than flipping a coin. And given that a regulated IFA is obliged to restore a client’s original financial position if their advice results in a client becoming worse off, this massive loss rate would have destroyed the advice industry years ago, if it were true. Which means it can’t possibly be true. And this suggests that many of those people who thought they were seeing regulated financial advisers… actually weren’t.
This theory is reinforced by another finding of the report, which is that 26% of people said they had faced pressure selling tactics from their ‘financial adviser’, pushing them into buying a financial product without fully understanding what it was. This is a huge red flag. An independent financial adviser is unaffiliated to product providers and has nothing to gain by pressure selling (and everything to lose), so it’s likely that these unfortunate individuals simply assumed they were receiving financial advice, when in reality they were just talking to a salesperson.
Many banks and financial product providers may deploy customer-facing staff who offer to guide customers on their options. Sometimes these staff may even be called ‘advisers’. However, although they may provide useful information about the products, they are not unbiased, as it is ultimately in their interests to sell their products and no-one else’s.
Equally commonplace is the ‘recommendation from a friend’, where someone who may have enjoyed some investment success encourages their friend to use the same ‘adviser’. The individual may then assume they are using a regulated financial adviser, but never get round to checking. If the ‘adviser’ is actually just an unregulated lone wolf who once made some lucky stock recommendations, the clients will only find out the hard way when the luck eventually runs out, and they have no claim for compensation.
People are therefore right to be wary, when so many individuals who make seem to be genuine advisers actually aren’t. But there are simple ways to be sure that you have found the real deal.
Here are some simple tips to follow, to be sure of finding a regulated IFA or whole-of-market financial adviser who will act in your best interests.
Here are the warning flags to watch out for, which may indicate that a ‘financial adviser’ is not actually what they seem.
You can find an unbiased financial adviser using the Unbiased search tool below.