We're All Doomed - The Importance Of Financial Advice In A Turbulent World

Paul Fothergill Regulatory Engagement Manager

The current cost of living crisis means that people are tightening their belts and looking for ways to cut their spending. What does that mean for the financial services industry in the short-term, and what’s it got to do with the Financial Conduct Authority (FCA)? Well dear reader, I’m about to try and make sense of it all!

The FCA are intensely interested in the cost of living crisis, as one of their objectives is consumer protection. At a time when consumers may be particularly at risk of harm due to financial pressure, the FCA becomes particularly interested in customer interactions with firms. But how do the FCA know what the state of people’s finances is? Step forward the FCA financial lives survey. Although the FCA hasn’t issued the full financial lives survey for 2022 yet, they have teased us with a preview of the results. The highlights make for sobering reading and aren’t for anyone with a nervous disposition. They confirm what we probably already knew, that many people’s finances are in for a rough ride over the next few years. The financial lives survey is a really useful piece of work conducted by the FCA - bear with me! It surveys adults aged 18 and over across the UK with around 1,300 questions covering all the different sectors the FCA regulates. This latest edition of the survey was conducted in May 2022 and received over 19,000 respondents. The full survey gives great insight into how consumers interact with financial services firms, the products they sell, and the services they provide. The FCA’s hand-selected insights from the full version of the survey present a bleak picture for the state of people’s financial circumstances now and in the not-too-distant future.

The key headline was that one in four of all UK adults have low financial resilience, which means these people are in financial difficulty or could quickly find themselves in difficulty if they suffered a financial shock, such as losing their main source of income. These people are usually in this position due to having little to no savings or being heavily burdened by their bills or their debts. The number of people with low financial resilience has risen since the FCA’s survey in 2020, indicating the increasing pressure that people are feeling. Another point raised in the highlights were the number of adults who say that they are heavily burdened by their bills and credit commitments. The 2022 survey put this figure at 15% of UK adults, with the FCA expecting this number to increase. This highlights that there is a core of people who are already struggling with their finances, never mind what the future will bring in the wider economy.

So what lessons can be drawn from the survey, other than that we’re all doomed? What the advanced preview of the survey shows is that there are a lot of people out there who can benefit from speaking to a financial adviser, whether about their mortgages, insurance needs or their investments. It’s often clear when speaking to prospective customers that they need the support of advisers to fully understand the nuances of financial products and services. Anyone can do their own internet research to discover more about these things, but a little knowledge can be a dangerous thing, particularly where finances are already squeezed. Decisions made without a full understanding of the potential consequences can lead to much higher costs for customers in the long run. Factors such as ongoing charges, early repayment charges and insurance coverage are all things that could be misunderstood or overlooked by people without the relevant knowledge and skills.

With people more likely to be looking at their finances, the ability to articulate the value that you can add for them is going to be an extremely important skill. To segue into some more compliance talk, it’s a great warm up for the FCA’s Consumer Duty price and value outcome, which will also require firms to consider the value that they add for their customers. As an industry, financial services has been a little bit behind the curve in trumpeting the value that we can provide to customers. With people looking to cut back in lots of different ways, showing the value that engaging with your business can provide can hopefully continue to help some of the people who need the most assistance, as well as generating more business for you.