Q. When is advice not advice?
A. When the adviser tells you it isn’t advice, right?
Not confusing at all really. Except it can be very confusing. Take the following typical example in the workplace:
For many employees this could easily equate to: ‘I’ve just had financial advice’.
Unless communicated and managed properly, this could be a big risk. Anyone speaking about financial matters needs to be very careful and specific in their language. So, to avoid confusion, we should first define the difference between guidance and advice:
Financial education and guidance: This is all about providing access to helpful and meaningful financial information. Helping people to understand the main concepts of managing their money and the key financial terms and products that enable them to do so. What is an individual savings account (ISA)? How do pensions work? The importance of budgeting and setting goals. And so on.
In the workplace pensions meeting example above, it may involve answering specific questions from an individual employee, but with ‘information-only’ answers. For example: ‘if you pay a 5% pension contribution, your employer will pay the same. In addition, you’ll receive tax relief on your contributions, which reduces the net cost to you.’
Financial advice: This is a considerably more in-depth and complex process, which can only be carried out by suitably qualified and experienced individuals who are regulated by the Financial Conduct Authority (FCA). It involves assessing an individual’s circumstances, objectives and attitude to things like investment risk. Once the adviser has thoroughly considered and analysed your needs, they recommend a course of action, specific to your individual circumstances and confirm their advice in writing.
The majority of people need financial education, rather than full-blown advice. My view on this has always been a passionate steal from fictional LA detective, Harry Bosch (created by Michael Connelly): ‘everyone counts or no-one counts’. Financial education should be available for all; not just wealthy people who can afford an adviser. Of course, the best way to improve our country’s collective financial literacy would be to make it a compulsory, examined subject in schools. In the absence of that, the workplace is the obvious starting point.
If consistent, engaging, relevant guidance is always available, many of your staff will rarely need advice. With the right tools and information, most people are perfectly capable of managing their money on a day-to-day basis.
How best to deliver this type of support will depend on your business and workforce. The most effective programmes use a range of media; online tools and information, videos, written guides and factsheets, group presentations or workshops (either face-to-face or via webinars), someone to answer individual questions (again, this can be face-to-face, over the telephone or using online chat tools). If budget is tight, speak to your pension provider or benefits consultants about any ‘add-on’ educational services they can provide within your existing contract and fee agreements. Often the additional tools and support available are considerable; people just don’t know about them.
Education and guidance can therefore cover all the day-to-day basics, as well as help reinforce the value of the workplace pension and other benefits you’re providing.
The need for regulated financial advice could well be described as a ‘nice problem to have’. Typically, it comes into play for higher earners or people with complex financial affairs. For example, those who may be affected by the annual or lifetime allowance for pensions, or the ‘personal allowance tax-trap’, or who would benefit from making sure they make best use of their annual capital gains tax allowance. These things may not affect the majority, but where they do apply, financial advice can be hugely beneficial.
Of course, a targeted financial education programme can also cover these ‘higher earner issues’ – providing employees with a generic overview of things to consider and pointing them towards advice if they feel they need further support.
Approaching retirement is another area where people may need to go down the advisory route, particularly where people are considering using flexi-access drawdown. Again, education and guidance can play a huge part in making this journey easier to navigate; and helping employees understand when they need to consider taking proper advice.
When it comes to achieving a return on your investment, providing financial education for the majority can offer the biggest win. Typical business objectives behind an employee wellbeing programme might include reducing stress and absenteeism, tackling ‘presenteeism’, improving engagement and increasing productivity. The employees most likely to be suffering as a result of financial matters are those who are struggling with debt or day-to-day living costs, or figuring out how to start saving alongside all their other commitments. Financial education is what’s needed here.
For the employees that then also need advice, employers can help facilitate this by providing access to reputable, suitably-qualified advisers. This could be employer funded, but is more commonly paid for by the individuals themselves.
A good financial wellbeing programme should leave your employees with: a) a huge smile on their faces; and b) an overriding sense of purpose; ‘I am going to take control of my finances!’ Then we must ensure employees are equipped to make this a reality. Armed with the right information and tools to ‘self-fulfil’, people can approach financial decisions from a point of understanding and personal control.
This article was first published with REBA on 3 September 2018