Breaking Bad Thinking: The 'Advice Gap' and What To Do About It

Chapter 1 - There is No Spoon

By Jym Brown

August 2024

A Word From the Author

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The ‘advice gap’ has received a great deal of attention in recent years, with several whitepapers exploring the concept in further detail. These reports and others do a great job in exploring what the industry thinks about the problem. They raise awareness as to the size of the issue, the potential opportunity and the general barriers as perceived by both consumer and adviser. They survey opinion and attitude, offering valuable insight into the minds of both parties. However, there is not an abundance of content relating to how this problem is likely tackled in a meaningful, evidence backed or systematic way.

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To unpick this a little further, we can survey consumers forever, asking their thoughts on financial advice and advisers, their willingness to pay for advice and what stops them doing so. We can continue to ask advisers for a customer breakdown and what barriers there are preventing them from servicing more clients. We can come up with generic solutions like ‘changing public opinion of financial advisers’ or simply ‘technology’. But for the former, rarely is there offered a strategy with any evidence of effectiveness as to how this change could be derived. For the latter, there is already an abundance of technology in the marketplace, so merely quoting its necessity will not solve anything either.

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In this series of papers, I aim to explore, with actionable insight where possible, ways in which the supposed advice gap may be solved. In this first paper, I question whether the ‘advice gap’ really exists or that ‘there is no spoon….’. (Hopefully the movie lovers among you will appreciate that one). I then propose that our thinking is shaped by our framing of the problem, or rather the ‘bad thinking’ to which I am referring in the title.

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I then give a proposed reframing of the problem along with some ideas as to how we can subtly change our perspective, helping us to really solve the issue or at the very least start aiming at different solutions.

In the following papers, I’ll be giving my thoughts as to how advice firms specifically can (should they choose to do so) change their models to capitalise on this opportunity and help millions of people. Through the lens of economic theory, I’ll suggest a disruptive model through which firms can break the inertia of both consumer and adviser, moving them metaphorically toward one another. This begins with how the problem can be solved through ‘right to left activity’. Or rather, it looks at how the traditional model of the industry would need to change or develop. Importantly though, this is not ‘the answer’ alone. It is merely the technological and non-regulated / regulated process or structure likely required to engage the masses and give advice and guidance on ‘advice gap scale’ in the UK. ?

The final paper will focus entirely on ‘left to right activity’ or the breaking of consumer inertia, moving them toward financial well-being and ultimately financial advice where relevant. This will be a brave effort at suggesting ways in which we can do what no one has done – motivate millions of non-consumers to engage in financial management of some sort. In many ways, this final paper could be the most impactful.

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I am not for a moment suggesting I have ‘good thinking’ on this subject or that I am indeed ‘right’. In fact, I welcome challenge to the thoughts included herein. What I am doing is urging us to think differently about a problem believed to be worth solving which is currently not being solved. I am offering up ideas that with any luck, could spark debate and subsequent positive outcomes for millions of people. At the very least, it will give a different viewpoint to be considered or simply disregarded.

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I would love to hear your thoughts and feedback…

Jym Brown - COO – Ningi

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Chapter 1 – There is no Spoon

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The formulation of a problem is often more essential than its solution, which may be merely a matter of mathematical or experimental skill. To raise new questions, new possibilities, to regard old problems from a new angle, requires creative imagination and marks real advance in science.

Albert Einstein(1)

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What’s the Problem?

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Is there an ‘advice gap’?

‘What an absurd question!’ I hear you say. ‘Everybody knows there’s an advice gap, evidenced by the disparity between those who receive and those who do not receive financial advice’.

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Yet, despite the ‘obviousness’ of the problem, our persistence in talking about ‘solving it’ and various efforts to do so, the so-called gap continues to grow.

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The Einstein quote at the beginning of this section stresses the importance of how a problem is framed over that of the solution. Effective framing requires utilising creative imagination, observing the challenge from different angles and identifying that which previously lay hidden. If framed properly, the answer may be a simple mathematical or scientific process. Frame it incorrectly or unimaginatively and the answer may forever elude.

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How is the problem currently framed? Answer – ‘How do we solve the advice gap?’

Where the advice gap is seen as the above disparity between the haves and have nots and where the regulator, the government and most significantly financial advisers are responsible for fixing it.

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How then do we begin to frame the problem differently?

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Well, perhaps it begins with asking different questions. Similarly to Einstein, the forward-thinking advertising wizard Rory Sutherland would argue for asking seemingly stupid questions. It is from these he believes we arrive at the truly innovative solutions or rather it is from here that alchemy is born.(2)

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The Silly Question - Is there an ‘Advice Gap'?

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Let’s start with a comparative example. Is there a ‘Dubai holiday gap’? As in, is there a section of society who do not, for whatever reason, holiday in Dubai each year or ever? That might seem silly, as the question assumes that aside from the stereotypical financial considerations, people would actually want to holiday in Dubai. Some may not. If people do not desire something in the first place, is there still a ‘gap’. Is this gap worthy of the connotations implied by its phrasing, or is it simply null and void?

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To take this a stage further and somewhat more applicably, should the UK government begin referring to a ‘personal training gap’? As in, an expression of the disparity of those who do / do not receive exercise instruction and advice from a certified personal trainer. Again, this may sound stupid, but bear with me…

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A lack of exercise has been shown to be a major cause of chronic diseases and other major / minor physical and psychological illnesses. (3) Approximately 80% of the UK population do not meet the minimum physical activity national guidelines (4), with 34% of men and 42% of women not exercising enough for ‘good health’. (5)

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Personal trainers help us to exercise and be healthy. Those who exercise with a personal trainer have been shown to work harder and achieve better results and overall outcomes than those who do not. (6) These trainers also achieve better results for complex patient issues, like illnesses and injuries. (6) So, everyone should get a personal trainer and we should address the ‘personal training gap’ as a matter of urgency. No?

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Clearly you see where this is going. I probably don’t need to re-quote data on how financial concerns are major contributors to divorce, poor mental and physical health. Or that financial advice makes people x better off over a decade, or that those who seek advice gain x% better returns that those who do not…. The comparison (hopefully) raises some concerns. Given we make a living from financial advice and that it has been shown to be beneficial and that benefit could solve serious problems, we consider it to be something everyone should have / do as a matter of course. We are also suggesting financial advisers are the ones to ‘solve’ this by giving financial advice to the masses (the gap). Would we say the same for personal trainers, who in this instance are basically the same entity as advisers for physical activity? Are personal trainers going to solve the exercise / fitness / health concerns of the nation?

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In making this assumption, we place advisers in the crosshairs. We judge their efforts as either greedy for not ‘trying to solve the gap’, or incompetent for not achieving more than they are and so on and so forth. Would we say the same about personal trainers? Again, how we frame the problem is very important. It also positions regulated financial advice as the baseline metric for success, when perhaps that is not / should not be the case. However, as soon as you say ‘advice gap’, that is the only option you have.

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Perspective

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We only think there’s an advice gap, because ‘advice’ is our frame of reference…

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Largely speaking, we think the way we do because of how things are and how they evolved. Financial advice as an industry developed in such a way where it became a specialist service for special people. It was lucrative and as such a model of operation became entrenched as the status quo.

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Comparatively, we started by saying:

Certified personal training is the only activity which counts and only certified personal trainers can do it

These trainers are expensive and as the cost of maintaining licenses / regulation increases, the pool of would-be clients has decreased

And our task is to improve the efficiencies of trainers so they can bridge the ‘personal training gap’

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But that is not the problem (in my view)…

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Let’s use one more analogy to hammer home the point here about how the framing dictates our thinking.

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Imagine instead this was the healthcare industry. We began with specialists / surgeons, treating only those with specific medical issues and / or things general practitioners could deal with, but who do not exist. This type of activity is a protected / regulated one (like regulated advice) and as such the pool of would-be patients has shrunk as the requirements for maintaining medical licenses has increased (consumer duty etc).

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But in comparison, the existing healthcare industry in the UK began with general practitioners for everyone and evolved to include a variety of specialists and surgeons as the profession advanced. If you have a complex issue, you are referred from your GP to a specialist. The pool of specialists increases over time through advances in research and the general level of knowledge regarding specific illnesses increases in the general practitioner population as this new learning passes down from specialists / researchers (a rising tide).

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Essentially, this is the reverse of the financial advice paradigm.

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I give these examples to illustrate the subtle but important distinctions between the way the problem can be viewed. The evolution of the industry has placed financial advice / specialist healthcare / personal training on a pedestal, framing the situation in a way which implies:

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Advice is what people need and therefore there is a disparity in society.

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Anchoring to this ideal leads people to view the problem in light of the current paradigm, meaning the solution is to:

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Reverse engineer the model to cover what is now a defined disparity.

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Whereas – if we let go of that idea and remove the anchor, the problem is one of ‘how do you get millions of people to do something / value something they don’t?’ The context just happens to be their financial activity / affairs…

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Or rather, how do we get them to exercise, on the assumption this exercise does not need to be led by (but could be) a personal trainer?

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Advice vs Exercise

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How do we get 39 million people to engage in some form of financial exercise equivalent? What ideas are conjured and importantly, who executes upon them?

With financial exercise as the desired outcome / behaviour, we begin to see things differently. Who could target these people? Just like with exercise rather than certified personal training as a specific activity, who could target the inactive portion of society?

Well, myriad business types / models, such as Nike, Strava, personal trainers, influencers, nutrition companies and more.

So, what about financial exercise? Influencers, coaches, banks and more… but importantly, so could advice firms.

However, viewed in terms of ‘how do we engage vast sums of people in exercise and monetise this?’ you likely go through different mental processes than ‘how do we take our current advice model and capture more people?’.

This area will be the focus of the final paper, but for now let’s speak in general terms. How do you engage millions of people collectively? Social media. How do you change behaviour / motivate interest on mass in today’s world? Social media, creating new trends, disruptive products / innovations. How do you scale activity to increase profitability? Technology (including social media). How do you monetise scaled activity creating low barrier to entry? Subscription based pricing, advertising revenue, affiliate relationships etc.

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Now, how is the ‘advice gap’ being tackled?

·?????? Financial advisers messing around with technology and their processes to increase their efficiencies so they can see a few extra people

·?????? Consultancies writing whitepapers asking what advisers think about the problem

·?????? The FCA asking people to do something

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All the while the rate of efficiency development is being outdone by the pressures of consumer duty so lower value AUM clients are being dropped. Great stuff.

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Where should efforts be placed?

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Firstly, change the goal posts by getting rid of regulated financial advice as the metric (there is no advice gap; there is no spoon)

Then, in my view, step one is simple (in premise) – get people interested in and believing they can positively influence their financial position….?

Step two then includes the metric for success - the financial equivalent of exercise. Activity, the sort of which is suitable for reaching millions of people, not thousands of people.

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The Psychological Element

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For those still believing that strictly regulated financial advice should be the goal and the lens through which we view this situation, it is worth exploring a particular avenue for a moment within the existing paradigm.

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In addressing the advice gap, we are dealing with potential and currently unwitting consumers, for whatever reason. Taking financial advice from a regulated professional is no more obvious or desirable than is hiring a personal trainer, especially if you don’t like exercise or personal trainers for that matter. What I mean by this is that the current model suggests / assumes people will ‘obviously’ take advice if it’s available, affordable or accessible, because, well, why wouldn’t they?

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Well… You can make something cheaper (lower cost gym memberships), free (you can exercise at home, outside, in outdoor gyms), doable in a variety of ways (almost anything done at an intensity or frequency that elevates the heart rate and incurs bodily movement qualifies), you can show the benefits (government campaigns and tv ads) and people still won’t move – let alone pay for a personal trainer!

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Likewise, you can make advice cheaper (digital / hybrid advice), you can make it free (free government advice), you can make it more accessible (digital advice / robo advice), you can show the benefits (FCA campaigns) and people still may not start managing their money, let alone pay for financial advice.

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The advice gap is not just a problem of access, price or distribution. It is also a psychological issue relating to anything we may believe to be ‘better for them’ or appealing with which they do not engage. We are dealing with consumers or rather, consumer behaviour. Yes, we need to have the products, advice and tech in place. But unless we change human behaviour, then both the advice and exercise gaps will continue to increase, not decrease. Another problem is that we cannot rely on market research within this avenue to equip us with the necessary tools or answers either. As the great David Ogilvy said “the trouble with market research is that people don’t think what they feel, they don’t say what they think, and they don’t do what they say”. 2 We are dealing with irrational creatures and thus cannot rely entirely on rational or logical processes.

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Instead, we may we need to remind ourselves to think more like Steve Jobs or the like, remembering we are trying to sell something to someone who currently doesn’t want it or can’t be bothered to do it. How would Jobs make people want financial advice? Or would he even say that’s what they need?

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‘Closing the Gap’

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As a quick example of what I’m eluding to, let’s take a logical ‘advice business paradigm’ approach.

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It is easy to view the main issue or challenge in a top-down or right to left way, especially as that is how advice is conducted currently. Beginning to solve the problem would therefore imply a metaphorical movement of adviser and their proposition down toward lower ticket clients. Indeed, this is probably seen as the only strategy available to advisers. Logically, this means tech-enabled solutions that provide a service at a lower price point and allocation of adviser time. In this view, the ‘advice gap’ is more of a ‘technology gap’.?

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Terminology

Traditional clients – The amount of people currently receiving advice in the UK. Largely face to face service. Circa 4 million people?

Peripheral – From lower AUM clients forced out of advice by rising minimum AUM requirements from firms, to the children of clients and other associated people, to those actively seeking advice who cannot receive it for various reasons. Circa 6 million

Advice gap clients - The 39 million adults in the UK who qualify for and would benefit from some form of financial advice. (7)

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Continued...?

Admittedly, this is likely enough to satisfy and cater for peripheral clients (and will be discussed in Part 2), given they are already motivated to seek financial advice. But it still requires that advisers want to explore and subsequently implement these solutions, changing the philosophy or day-to-day practice of their firm. This is hardly a given.

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The further assumption is that this will trickle down into the masses and see large uptake as a result. But to do so, advisers must figure out how to distribute their products and services to this consumer group (a distribution gap). One way of solving distribution would be to have employers pay for and distribute advice for advisers as part of employee benefits schemes. This is a sound idea and would likely impact the distribution gap, placing digital or hybrid advice journeys in the laps of millions at no cost to the end user. Marvellous…. However, I remain skeptical as to the rate of take up without addressing the mentality of the consumer. The Langcat report and others have shown this population to have more hang-ups about financial advice than just price or access.7

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As a tangent from the previous analogy - how many gym goers are there in companies who sponsor or provide memberships as an employee benefit? Research from 2019 found that local authority gym users with membership provided through their workplace visit the gym 15 per cent more often than other local authority gym members. (8) However, 1 in 4 of memberships provided by the employer were never used and many were only sparingly used. This, for a section of society who may not have inherently negative views about gyms as they do financial advisers and their advice. In other words, provision of this kind may develop or improve usage, but may only be part of the story.

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If the advice gap is to be closed then, can we infer that adviser movement toward consumers is only part of the solution? If the technology, distribution and pricing elements are ‘solved’ would that be it? Would the gap come crashing down? The answer it seems, is far from just provision. Consumer movement toward advisers may indeed be the missing part of the puzzle enabled by technology but sparked by something else…

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Put a different way, consumers need to want a product to buy it in the first place. Or, potential consumers need to want to do something before they’ll do it. This is a fundamental part of human behaviour change which will be discussed in further detail in the final paper.

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With the above thinking in mind, the task then is both to break the apparent inertia of both adviser and consumer and encourage movement toward one another, rather than merely dripping down from the lofty heights of traditional advice to the masses. Both tasks imply a need to change financial advice at a fundamental level. How it is executed, how it is viewed and how the game is played. The industry ‘requires’ disruption. Or simply, we do not have a technology gap or distribution gap but rather a disruption gap.

The Reframing

At the beginning of the paper, I began questioning the way in which the problem of the advice gap is framed. I then explored the current thinking on the problem in relation to a simple analogy to try and open new lines of thinking.

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I believe the existing framing of there being an ‘advice gap’ which the advice industry is responsible for closing to be restrictive and detrimental to the cause. It leads to constrained thinking and obvious yet limited assumptions, such as ‘efficiencies and distribution are the way – that’s how the advice gap will be solved’. It determines one potential source of activity – regulated financial advice – as the only thing to be considered. Thus, determining only one solution provider in the form of traditional financial advice businesses (like personal trainers). It’s like the old adage of if all you have is a hammer, you see everything as a nail.

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Yet, when viewed in light of the simple personal training analogy, we begin to see how that is likely mistaken. We would not rely on personal trainers to get the UK physically healthier / fitter, so we shouldn’t rely on advisers to make us financially fitter. That’s not to say they can’t (as clearly they could) but rather they shouldn’t be relied upon to do so, especially using their existing business model.? Plus, we also see how expressing the need for exercise rather than personal training reframes the desired outcome from something unachievable to something more achievable. Finally, we then see how ‘motivating people to want to do something / be interested in something’ is another missing element of the equation.

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Opportunity

With all the above in mind, I would like to add a significant caveat….

IF the advice industry wants to help the problem then it has the OPPORTUNITY to do so by significantly changing its business model to focus on breaking consumer inertia to drive financial interest and thereby exercise. By the sheer numbers alone, if the advice industry was serious about this then it would represent the bulk of their efforts.?

Now, there are many that will say things like ‘that’s just financial education and employee benefits stuff – we’ve been doing that for ages and just need better tech’. But again, this is missing the point to some degree. Without a huge focus or pivot from the business to adopt a radically different business model, those numbers will never likely change. Without changing the mindset of millions of people, those numbers will also never change. All the while advice businesses are anchored to the traditional model and seek to grow their proposition through efficiencies and tech down to the lower AUM at small scale, things will not change. Becoming 20% more efficient and therefore able to see 20% more clients, does very little to impacting all those not receiving advice. Even 50% or 100% more efficient fails to move the needle. Done this way the ‘advice gap’ will remain for a very, very long time.

Rather than thinking like an advice business, I recommend thinking like a ‘changing the behaviour of millions of people’ business. Without really tackling the problem of how to engage and change the behaviour of millions of people, we will never start improving financial fitness. I do however think that attempting to stretch the existing paradigm of advice to cover more people is part of the answer (scaling financial advice is still a good thing!), but is not THE answer for fixing the ‘advice gap’. Because, well, there is no spoon.

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So, here is my thinking (and continuing the analogy):

Regulated financial advice = personal training

Unregulated financial development (better financial awareness, decision making, planning, action etc) = exercise

Exercise and personal training exist on a continuum

Financial development and regulated financial advice exist on a continuum

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Incorrect framing

There is an advice gap and advisers should fix it = there is a personal training gap and personal trainers should fix it

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Current business models / capacity to serve should be improved through efficiencies and things like workplace advice distribution, in order to solve the problem?

New Framing – There is no ‘Advice Gap’

Assumption 1

The UK population is financially sedentary (unfit) and needs to ‘exercise’

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Financial advisers CAN help with this in the same way personal trainers can

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Financial advisers are no more responsible for the financial health of the nation than are personal trainers for physical activity levels

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Not everyone needs a personal trainer / adviser – many just need exercise

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Assumption 2

There are many reasons why people begin exercising when they did not do before and beginning financial development could be no different

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Myriad business types / models can target exercise (Nike, Strava, personal trainers, influencers, nutrition companies etc)

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Financial development can be targeted by various business types and models too

MEANING

Financial advice businesses could engage people in various ways to facilitate financial development and / or financial advice, rather than just the latter

THEREFORE

Advisers can facilitate BOTH exercise AND personal training as part of the same business model (or separate ones if they wish) to improve financial fitness / development of millions of people

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FINALLY – IF financial advice businesses are really serious about impacting the ‘advice gap’ then it is essential for the existing model to change. Keeping to the existing model / framework, advice businesses would need to go from 115 clients per adviser on average to around 2000-3000 clients per adviser. I would argue it is obvious that this will not happen in the usual way, unless we start redefining what we mean by ‘client’, ‘advice’ and ‘advice business’.

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The following papers will discuss this in more detail. However, I am saying that IF (and that’s a big IF) the advice market genuinely wants to do something about this problem, then the standard industry model requires disrupting…. The right technology will be required, but so too will be the right mindset, perspective and motive.

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Conclusion

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I appreciate my usage of analogy, reframing of a common problem and slightly wild ideas may have come across to some as demeaning the profession of financial advice. Or at the very least a ‘watering down’ of the importance of financial advice and the industry as a whole. However, that is not my intention. To be clear, I think financial advice is very important, technical and regulated for a reason. The problem people are really trying to solve though in my opinion, is how to improve the lives of 10 times the amount of people, none of which can be or are helped through traditional means. That is what this paper is geared toward and not the protection of the existing advice model or tradition.

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Ultimately, I suppose I am disagreeing with the fundamental premise that 39 million people need financial advice. I don’t think that’s where the bar should sit. I think 39 million people need to be financially fitter, in turn likely reducing the need for financial advice in the first place.

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For the advice industry I think the upshot is simple. Change the perspective and therefore the approach or stay as you are. If the industry chooses the latter with almost lame or nominal attempts to ‘increase efficiencies to help service more clients’ then you should stop ‘advice gap’ conversations altogether. You will never solve it at the scale required and should stop wasting everyone’s time. Making a personal trainer a bit more efficient is not going to solve UK obesity after all.

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If, however, you / the industry chooses to let go of the existing paradigm and see a more flexible approach underpinned by technology which enables advice at scale where needed, but is attached to and driven by huge volumes of financial ‘exercise’ through vehicles like social media, then conversations should continue. Financial advice is not the be all and end all. It is only part of the service proposition or continuum along which every human being sits.

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With exercise as the main focus, some people may go their entire lives running their own exercise regimes, consuming content, using fitness apps and improvising along the way. Sure, they may miss out on better results by not going to see a personal trainer. But not everyone wants or needs one. We should make sure those specialists are there for those who do want them and their operations should be scaled to do this on mass, including them being among the ones providing the content consumed to encourage better quality in the first place. But they are not ‘responsible’ for getting the world moving. It is not a personal training gap, it is not an ‘advice gap’.

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There are many different business models and companies who can start targeting these potential consumers, financial advisers included. I just don’t think it will happen in the usual way… so it’s your call as to whether you want to get involved or not.

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Finally, if I haven’t put you off too much already, the next paper will explore how to disrupt the existing advice business model, ensuring firms are ‘set up’ for this future. I’ll also give some ideas as to what the market landscape may look like with this sort of influence becoming the norm.

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The final paper will detail how I think 39 million people can be targeted on mass. If the business models are there and the tech is there, the final piece of the puzzle can be laid down. Changing the mindset, attitudes and buying behaviour of 39 million people is far from a simple task (hence why no one has done it yet), but I think it is doable. At the very least, I think it’s worth giving something new a go. Maybe it is worth me repeating an earlier sentiment here. I believe the most important step is making people interested in and believing they can positively impact their financial situation.?

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So, do you still view the question the same way? Is there an advice gap? Is the spoon really there? Interestingly, how would you (financial adviser) fair as a personal trainer trying to capitalise on the millions of ‘potential customers’ in the ‘personal training gap’?

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References

1. Einstein, Albert and Leopold Infeld, 1938,?The Evolution of Physics: The Growth of Ideas from Early Concepts to Relativity and Quanta, New York: Simon and Schuster.
2. Sutherland, R. 2020. Alchemy: The magic of original thinking in a world of mind-numbing conformity. Random House: London.
3. Ratamess, Nicholas A; Faigenbaum, Avery D; Hoffman, Jay R; Kang, Jie. Self-Selected Resistance Training Intensity in Healthy Women: The Influence of a Personal Trainer. Journal of Strength and Conditioning Research 22(1):p 103-111, January 2008. | DOI: 10.1519/JSC.0b013e31815f29cc
4. Booth, F. W., Roberts, C. K., & Laye, M. J. (2012). Lack of exercise is a major cause of chronic diseases.?Comprehensive Physiology,?2(2), 1143–1211. https://doi.org/10.1002/cphy.c110025
5. https://www.theguardian.com/society/2013/aug/10/uk-exercise-levels-low-targets-fitness
6. https://www.gov.uk/government/publications/physical-activity-applying-all-our-health/physical-activity-applying-all-our-health#:~:text=Around%201%20in%203%20(34,age%2C%20especially%20in%20older%20years.
7. https://thelangcat.co.uk/report/advice-gap-report-2/
8. https://www.ukactive.com/journal/new-research-explores-value-of-employer-provided-gym-memberships/

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