Pre pandemic, in February 2020, the FCA conducted its second Financial Lives survey. This survey of UK consumers provides information about consumers' attitudes towards managing their money, the financial products they have and their experiences of engaging with financial services firms.
A key question that this survey seeks to answer is how many UK adults have low financial resilience. As part of this, the survey looks at how many adults display characteristics of vulnerability which relates to poor health, a life event, low resilience or low capability.
A recent update to this report[1] includes a follow up conducted in October 2020 looking at how consumers had coped with the financial impact of the pandemic.
In the first Financial Lives Survey back in 2017, 51% of adults displayed one or more characteristics of vulnerability. This had dropped to 46% in the February 2020 survey, largely due to fewer people being digitally excluded. However, it comes as no surprise that by October 2020, this number had risen to 53%.
The rise was largely driven by people experiencing negative life events such as redundancy, reduced working hours and low financial resilience, the latter, as a factor in itself, had risen from 20%-27%.
However, the Covid-19 pandemic has resulted in some polarisation. Whilst there has been a rise in financial vulnerability, 48% of adults reported no financial impact with 14% experiencing an improvement in their financial position.
Are there some key takeaways for the financial services industry from these surveys? For me, there are some interesting headlines:
1. Cash savings
- 26% of people surveyed had increased their cash savings since February 2020
- 55% of all adults with more than £10,000 investable assets hold most or all of it in cash
- 10% moved investments to cash due to volatility concerns
The report highlighted that ‘a significant proposition of wealthier adults were holding more in cash than would be required as an emergency savings ‘buffer'. With ongoing low interest rates and the threat of potential rises in inflation, we all appreciate the downsides of holding too much in cash. In an FCA report[2] last year, it was highlighted that some consumers were at risk of financial harm due to holding cash rather than investing. The example was given that a client holding £10,000 in cash between 2008 and 2018 would now have a value of £11,720. If they had invested, the value would now be £21,905.
As an industry, we need to continue to demonstrate the benefits of investing in the market and I would argue that the above example demonstrates what financial advice might have achieved.
2. Pensions
- 52% of adults decumulating from a DC pension were not retired; and of those fully encashing, 63% were not retired
Decumulation pre-retirement for many may have been the only option available last year to address financial challenges caused by the Covid-19 pandemic. Many of the full encashments may also have been ‘small pots'.
However, this may have been short-sighted and some consumers might have had other options available to generate income. Often one of the benefits of working with a financial adviser is to ‘save the client from themselves'. Many people cashing out last year at the bottom of the market will have missed the subsequent rebound and would potentially have been better off had they remained invested.
3. Engagement
- 28% of adults paid closer to attention to their investments
- 57% felt nervous, overwhelmed or stressed when speaking to financial services' providers or found it difficult to find suitable products or services
Whilst some clients are engaging with their investments, which is good news, why do others find it difficult to engage with the industry and to find suitable products and services?
We as an industry need to question ourselves on this point. Does diversity (or perceived lack of) have a part to play? Do our businesses truly reflect the society we serve and is the current effort to address this actually making a difference?
Interestingly, 60% of wealth in the UK will be in the hands of women by 2025 - are we addressing this with appropriate products and services or is the fact that only 28% of advisers are female also an issue? Maybe all of these factors are at play.
Do we also do enough to attract and engage younger investors using technology, appropriate investment solutions and education? The ‘get rich slow' approach with a well diversified portfolio might be unattractive when faced with the opportunities to make a ‘fast buck' with Bitcoin or popular shares?
There is a lot to consider here and whilst I don't have all the answers, I would recommend a read of the FCA report (all 222 pages!) which offers a deep insight into the ‘state of the nation', and perhaps what we could do as an industry to move the dial.
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[1] Financial Lives 2020 survey: the impact of Coronavirus
[2] Evaluation of the impact of the Retail Distribution Review and Financial Advice Market Review, December 2020
