The Guidance Gap - An investigation of the UK's post-RDR savings and investment landscape

Arguably sound finances are as important to our well-being as sound health. In 2006 the Financial Services Authority (FSA) launched the Retail Distribution Review (RDR) to reconsider the way in which financial advice is provided to retail investors and savers. One of the main goals of this review was to identify ways of improving the quality of this advice which, if successful, would in turn help to improve the quality of our personal finances.

An important conclusion of the RDR was that professional independent advisers should no longer be paid for their advice by product providers via commission arrangements. Instead they would need to charge their clients an explicit fee for their advice. The FSA's intention in moving independent financial advice away from the commission-based model was to elucidate not only the cost of financial advice but also its value. This new, fee-based framework for the provision of financial advice began on 1st January 2013.

The move to a fee-based remuneration model raises an important question: will UK retail savers and investors be willing to pay a fee for financial advice? Based on a survey of 2,060 people, representative of the UK's adult population, our survey indicates that only just over 7 million people are 'likely' to be willing to pay a fee for financial advice. Although of course, many people did not make use of financial advice prior to the RDR changes, we nonetheless find that 26.5 million people across the country, say that they are 'unlikely' to pay for financial advice.

Given that there is likely to be a large number of people that will not be serviced by professional financial advisers in the RDR world, we explored the possible role that 'financial guidance' could play. By guidance we mean a resource that would provide people with all of the information they would need to make investment and savings decisions on their own. Such guidance could be provided by, for example, large employers for their employees, by the finance industry, by independent web-based companies, or indeed by financial advisers.

In the course of this research we have identified a financial 'guidance gap'. This gap comprises those people that will be without professional financial advice in the RDR world and that will not have the confidence to make their own decisions in the absence of professional advice but who, nevertheless, will be in need of financial guidance in order to maintain the health of their personal finances.

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