Context

The financial services market is becoming increasingly more complex, especially regarding investments and pensions. This is exacerbated in countries where social welfare reforms have placed more responsibility on individuals. Research indicates that there is a need for financial guidance, due to low levels of financial knowledge as well as low levels of financially capable behaviours. However, many consumers do not know where to go for independent financial advice. To inform policy and practice relating to providing financial guidance for consumers, further research is needed to identify current best practice in the provision of comprehensive financial guidance.

The study

The European Commission Directorate-General for Financial Stability, Financial Services and Capital Markets Union commissioned this study. The study had two key objectives:

• To identify and analyse examples of good practice in terms of service delivery;
• To identify and analyse best practice in terms of incentivising and promoting use by consumers.

The research consortium conducted research over three stages, between January and July 2016. The first stage involved desk research and a literature review. The second stage involved an online survey of 203 potential providers of financial guidance, and the third stage involved the researchers undertaking 42 interviews with key providers, potential providers and national experts

Key findings

• There was limited direct evidence on both the level and the nature of needs for financial guidance. Instead, the need for financial guidance was supported by indirect evidence relating to levels of financial knowledge and capability, reported difficulties finding relevant and impartial evidence on financial matters, and unmet needs for financial advice, through an inability or unwillingness to pay for such services.

• Although regulators and/or national governments are direct providers of financial guidance websites or organisations in most countries, they do not seem to have assumed the role of planning service provision, except for in Australia and the UK;
• In Australia, the financial services regulator provides information, advice and guidance. The government is also a direct provider and has developed a national Financial Information Service;
• In the UK, the regulator and the national government not only provide financial guidance, but they have also played a very active role in the development of financial guidance services over an extended period of time.

• The survey found that a large number, and wide range of, organisations claim to be providing financial guidance. This includes financial advisers in banks and insurance companies, independent financial advisers and planners, not-for-profit and consumer bodies, and governmental and other public and official bodies;
• However, a closer examination of the survey responses suggests that many of the advisers in the commercial sector are providing financial advice that is linked to recommending or selling financial products.

• The study found that there was limited information in the public domain about the cost of financial guidance services. The available evidence suggests that the cost of providing a financial guidance service is much greater than the sums of money that consumers are willing to pay.

• The research suggests that consumers delay thinking about their finances until they experience a problem or experience key life events or times of transition in their lives;
• Most of the survey respondents said that they found that word-of-mouth recommendation by users was the most successful form of promotion. Other methods included advertising on a website and referrals from other organisations;
• Most of the survey respondents did not offer incentives to stimulate demand for financial guidance. In the examples where providers had used an incentive, this was usually in the form of an initial free ‘taster session’ and was concentrated among independent financial advisers and planners.

• Many evaluations in this area typically measure overall levels of satisfaction, accompanied by measures of how likely a consumer is to use the service again. The desk review found that there was only one study that used a comparison group in order to be able to attribute consumers’ outcomes to the service itself.

• The study found that in the UK, Australia and the Netherlands, financial guidance is generally an unregulated activity;
• The majority of survey respondents said that their services were regulated. The likelihood of being regulated was highest for providers that recommended a specific product or course of action, and lowest for those that only provided information.

Points to consider

• Respondents to the survey were from seven countries all with similar characteristics; six of which were in the EU, and Australia. Therefore, the findings cannot readily be generalised to other countries in Europe or elsewhere.