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How can advisers restore public trust?

Trust – or lack thereof – has been a long-standing issue within financial services.

Previous scandals within the industry, such as fund mismanagement and poor investment practices, combined with the general lack of transparency within the financial services sector has done no favours to its reputation. The real tragedy, however, is that this deters many people from seeking independent financial advice.

Presently, there should be high demand for independent financial advisers (IFAs). The financial pressures caused by COVID-19 have meant that the financial strategies of many individuals have been turned on their head. People have been forced to dip into their life savings, give up on savings goals entirely and, in some cases, take early retirement due to being made redundant. In these circumstances, you would be forgiven for assuming that Britons would eagerly seek professional advice to help them adapt to their finances.

However, this is not the case. According to a recent survey of over 2,000 UK adults conducted by My Pension Expert, less than two thirds (38%) of Britons have ever sought the help of an IFA.

So, why are people so reluctant to seek advice?

Poor experiences

Evidence suggests that public perceptions of IFAs are shaped by previous negative experiences.

Indeed, My Pension Expert’s aforementioned research revealed that almost one in five (18%) people have lost money after following the recommendations of an adviser in the past – shockingly, one in eight (13%) have experienced this within the past year alone. Worse still, over a quarter (26%) of people have been pressured by an IFA into purchasing a financial product despite not fully understanding what it was.

Whilst the Financial Conduct Authority (FCA) clamped down on such unethical practices with its retail distribution review (RDR), the reputational damage to advisers had already been done. Consequently, the majority (57%) of Britons still do not trust financial advisers.

This lack of trust means that many people may feel they have no other choice than to muddle through their financial strategy unaided. And with so many complex financial products available to choose from, making a decision without professional insight or advice could prove detrimental to people’s long-term finances.

It is clear that the industry must take swift action to restore public trust and ensure that people are making informed financial decisions to suit their circumstances.

The question is, how?

Rebuilding public trust

Naturally, the financial services industry will not rebuild public confidence overnight. This will take time and careful planning. That said, Britons are already beginning to vocalise the changes they want to see from the sector.

Indeed, My Pension Expert’s aforementioned research revealed that an overwhelming majority (78%) of adults want to see unethical IFAs face harsher punishments. Meanwhile, a similar number (73%) believe that tighter regulations surrounding financial advice would help to restore trust.

Access to information could also prove vital in this process; 72% of Britons claim that they would be more likely to engage with IFAs if the FCA better publicised the benefits of seeking advice. For example, people may not be aware that a regulated adviser is obligated to restore a client’s original financial position if their recommendations resulted in the client in question being worse off. In all likelihood, if more people were aware of this, they might be more willing to consult an IFA before adjusting their financial strategy.

Ultimately, it is up to the FCA and advisers themselves to work together to restore public trust. Of course, changes will take time, but it is vital that steps are taken to improve transparency within financial services and clamp down on unethical practices. Doing so will go a long way in encouraging Britons to engage with IFAs, and subsequently protect their financial futures