Emma Smith
A blog article for Seccl, an investment technology provider, which includes personal finance anecdotes and an interview with their Head of Propositions.
As this year’s exam 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 up the electric metre, I never really learned 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+ increased by a staggering 77% average graduate salary
With the hope of presenting a less gloomy picture, I turned to Head of Propositions (and all-round investment platform guru), Chris Smeaton
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 Research from 2019
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
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
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
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 GameStop/Reddit
Our fintech clients are also opening doors to younger generations. Wombat Multiply
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
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.