Alarming signs are emerging of a growing gap in financial advice for elderly Britons, many of whom face acute debt problems. A new report from the University of Hull and Bournemouth University has outlined for the first time how changes to how financial advice is paid for has hit elderly people and their access to sound independent money advice.
At the start of the year the payment on commission to advisers selling investment products was banned. Instead financial advisers started levying flat fees, sometimes running into four figures for their advice services. In the first major study conducted since this change, researchers at Hull and Bournemouth universities have found that many elderly people, no doubt put off by high fees charged for financial advice, are floundering around and relying on family members and social services professionals for money guidance.
“The research we have commissioned shows that decreases in pensions and investment returns coupled with increases in the costs of living are having a marked impact on the well being of older people, many of whom are asset rich but cash poor,” said Michelle Crickett, director of research at the Institute of Chartered Accountants of Scotland, which sponsored the academic study.
“The fact that these older people are seeking financial advice from non-finance professionals, leaving their already stretched finances open to further risk, is highly concerning.”
The potential for elderly people in particular to suffer cases of mis-selling, fraud or poor financial advice from non-qualified people is a major worry, says Brian Dennehy, the managing director of Fund expert. “This report is very disturbing as it highlights a major gap in financial advice for a group that often needs help with their finances. As an independent adviser I normally see people who have a bit put away and are financially fairly switched on but there is a whole legion of people out there who need qualified advice and aren’t getting it.”
Mr Dennehy adds that some of the financial challenges facing the elderly are particularly acute: “As you get older often your finances get more complex. There are many people reaching retirement who still have debts or mortgages to pay off, or have a pension put to convert to an annuity or could be in danger of making a bad investment decision or one that causes their estate to be subject to more tax than is necessary. And dare I suggest as well that quite a number of elderly women relied on their husbands to take care of finances and when they die they can be left without any guidance and this is where they could be prey to poor advice, mis-selling or do nothing.”
Of course there is the government-sponsored Money Advice Service to help and many online resources, particularly helpful when it comes to buying an annuity, but Mr Dennehy says these can often be missed by older people. “Let’s face it, a good proportion of older people have no access to the internet or know where to source the right information online. It is not enough to rely on online to cure all ills in this generation at least. We need face-to-face help for people from qualified professionals.”
However, citizens advice is reporting huge demand from the public for help with debt difficulties. These requests come increasingly from the elderly.
William Hunter, the founder of Hunter Wealth Management, said: “If you get inheritance tax planning and your annuity choice wrong, the financial consequences can be severe. It can cost you tens of thousands of pounds, maybe even hundreds of thousands of pounds. It’s just not worth the risk. Ninety per cent of people close to retirement have heard of the open market option – the right to take a pension fund and shop around for an annuity. Just one bad DIY decision made by an elderly person can amount to much more than the original fee for advice would ever have cost. And it’s so easy to be misled by headline income rates, or the spiel of an existing pension company offering you this, that or the other.”
For those with the means to pay, Mr Hunter says independent financial advice can be worth its weight in gold: “Getting financial advice will generally now require a clearly visible fixed cost. The irony is that this cost will generally be cheaper, and is certainly much more transparent, than the commission-based, potentially product-biased alternative of the past. But the psychological impact is much harder for people, especially elderly people, to take.”
With an ageing population the financial challenges are becoming more complex. Danny Cox from independent financial advice firm Hargreaves Lansdown identifies long-term care provision as being of particular concern: “A huge number of us are going to need long-term care and this is an extremely complex area. Advisers have to know about state benefits and how to maximise entitlements. There is also the need to generate high levels of income to meet care costs but there are very few products which do this,” Mr Cox said.
With many elderly people being cash poor and asset rich the need for proper advice on equity release is also key. This is another area which Mr Cox reckons is poorly served: “Equity release is the another option to raise money. Equity release is also a specialist area of advice which few advisers do well and still bears the hangovers of the negative equity problems of 20 years ago,” he said.
As for closing the advice gap for the elderly, the report suggests that councils, the money advice services and the department of health join forces to open day clubs for elderly people where they can meet and have their financial problems addressed. Mr Dennehy thinks the financial advice industry can help. “Perhaps advisers could look at doing half a day a month pro-bono work for the elderly, helping give them pointers and the means by which to sort out their finances.”
Independent Partners: Search our directory to find Independent Financial Advisers (IFAs) who have been rated and reviewed by their clients. Find out more