The affordable advice gap: how affordable and clear pricing can help more consumers access paid-for financial advice

The Affordable Advice Gap 730 KB finds that more than half (53%) of consumers with Defined Contribution (DC) pensions want expert help with how to withdraw their savings. They can seek free help in the form of guidance such as Pension Wise, paid-for advice such as from an IFA, or both. Many consumers are interested in both free and paid for support when accessing their pensions. More than two in five (44%) people who plan to pay an IFA also plan to take free Pension Wise guidance.

Our research suggests that consumers with medium-sized pots can access financial advice: 80% of financial advisers on the Money Advice Service’s retirement adviser directory would take on a client with £61,000 in pension savings. We also found that almost all (97%) financial advisers offer a free initial meeting, which allows them to agree charges with customers before giving advice.

However, we have identified a significant affordability gap on the demand side. On average it is likely to cost £1,490 to secure a flexible income from a £61,000 pension.This equates to almost exactly a month’s net salary for a median earner in the UK. Although this investment is likely to be beneficial in the long run, just 2% of consumers say they would pay between £1,000 and £2,000 for one-off advice in this situation.

IFAs currently offer a high quality service to their customers but they may not appeal to the broader market. More consumers would consider taking different forms of advice if they were available at lower price levels. The current guidance and advice markets could be seen as analogous to giving consumers the option to take a free driving lesson or to pay for a chauffeur-driven Rolls-Royce. While both of these options should be protected, consumers should also have access to a mass market middle ground - the equivalent of driving a mid-priced family estate.

Our evidence shows significant untapped demand for cheaper advice. Although just one in fifty adults would pay over £1,000 for advice on a £61,000 pension, nearly half (47%) would be willing to pay some fee for advice. This includes 16% who would be willing to pay between £200 and £1,000.

We have also found considerable variability in the customer journey. Many firms were able to give a clear account of their pricing during an initial call, but others were unwilling or unable to give even a basic idea of prices. This creates a risk that clients will give up searching for advice before being able to attend a free initial meeting.

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From our research, we recommend that:

• Advice firms should make price guides publicly available and should try to communicate fee structures as simply as possible. This will improve consumer confidence and make customer journeys smoother.

• The government should use the Financial Market Review to explore how to radically reduce the costs of advice options. This could help reduce costs for IFAs and encourage new mid-market options for new consumers.

• Guidance organisations should offer better information and referral about paid-for financial advice services. They can do more to help consumers understand the differences between particular advisers and advice options so they can decide what advice to seek.

• The government should work with financial adviser directories to explore whether they could include TripAdvisor-style customer feedback. This would improve transparency of the benefits of financial advice.

• Financial advisers and guidance providers should take action to further publicise the benefits of advice and to communicate the standards and protections that now exist following the Retail Distribution Review (RDR).

• The government and regulators should explore what can be done to clarify and facilitate options around independent and restricted advice. This includes clarifying the difference between specialist advisers and tied or non-whole-of-market advisers, while protecting the current definition of independent financial advice.

Citizens Advice delivers pension guidance on behalf of HM Treasury, under the Pension Wise brand. These recommendations reflect the views of Citizens Advice as a consumer champion in the financial services market, and not the views of Pension Wise or HM Treasury.