Financial advice can contribute greatly to financial wellbeing and a positive money mindset, new research from Aegon has revealed, but wealth doesn’t necessarily equate to a concrete vision of the future. This is where advice firms can add further value.
According to a new report from the pensions and investment firm, just 10% of people who have never had any financial advice are able to combine healthy finances and a positive financial mindset, compared to 44% of those who seek regular advice and 23% of those who have occasionally used a financial adviser.
However, the research also showed that the positive correlation between the two stems primarily from advisers helping their clients accumulate wealth rather than providing them with a sense of purpose.
Individuals with an adviser were found to have nearly three times as much pension savings (£246,000) compared to non-advised individuals (£95,000).
This pattern was repeated across their finances, with advised clients having more than double (£65,000) the non-pension savings (£32,000) of their non-advised counterparts, and lower unsecured debt at £3,700 compared to £6,400.
However, Aegon said the research found that while better off, over a fifth (22%) of those with a financial adviser only had a vague sense of what gives them joy and purpose in life. This number rose to 32% among the non-advised population.
While three-quarters of those with an adviser have a financial plan, less than half (44%) said they had a concrete picture of their future self in ten years’ time. Similarly, 11% of advised clients admitted to frequently comparing their finances to those who are better off, versus 17% of non-advised individuals.
Aegon said the findings highlighted an opportunity for advisers to strengthen their relationship with clients by influencing their financial wellbeing on a deeper level.
Ronnie Taylor, chief distribution officer at Aegon, said: “Financial advice and financial planning in the UK is evolving at speed.
“Behaviours, feelings and attitudes are gradually becoming more central to financial planning and advice. This approach doesn’t start with the money, it starts with the vision. The hopes, anxieties, relationships, influences alongside attitudes to life, family and work are all core to the financial wellbeing of a client and should be given as much attention as to the amount of investible assets.
“Planning a financial future based on a client’s purpose as well as their financial needs is likely to lead to better financial wellbeing for both the client and your business.
“Insight like this can deliver a more fulfilling client experience with better outcomes for clients and long-term, valuable client relationships for advisers.”
Chris Budd, chair of the Initiative for Financial Wellbeing, added: “Advisers and financial planners have a fantastic opportunity to combine happiness and fulfilment with wealth. If advisers were to integrate some focus on the mindset factors identified in Aegon’s Financial Wellbeing Index, they could influence and improve the overall financial wellbeing of their clients.
“It’s not something that will happen overnight, but by applying financial wellbeing theory to the advice process you can slow down the traditional solution driven approach to gain a true understanding of the money motivations of your clients for the best outcomes in terms of happiness and not just wealth.
“Incorporating financial wellbeing practice into your financial planning and advice services is a sure way of strengthening your client/adviser relationship and future proofing your business.”
