Research

Financial confidence no substitute for good advice

Two people looking at a computer screen
  • ‘Financially confident’ less likely to have basic knowledge
  • Overconfidence can lead to decisions with far-reaching consequences
  • Aviva calls for more ways of accessing advice to avoid mistakes

Research from Aviva shows that people that feel financially confident often don’t have better levels of knowledge than the less confident, and are not guaranteed to take better financial paths. 

45% of ‘confident’ respondents1 incorrectly said it was ‘false’ that pensions attract tax relief, nearly a quarter (23%) did not know that the level of state pension can be affected by the amount of NI paid, and 28% did not know at what age they would receive their state pension.

Mary Harper, MD Aviva Financial Advice, commented, “Our research shows that although some people feel confident in making financial decisions, there is a worrying lack of basic knowledge that is key to shaping appropriate saving and investment plans. 

... although some people feel confident in making financial decisions, there is a worrying lack of basic knowledge that is key to shaping appropriate saving and investment plans.
Mary Harper, MD Aviva Financial Advice

"Knowing how much tax relief a pension will attract, how long you need to save to get a full state pension, and at what age that will become available are really important parts of the planning process, allowing people to assess more accurately how much they will need to save and for how long. Without this, some people are unfortunately making decisions with potentially far-reaching consequences, because they only have a partial view of the factors that will impact them.

“One of the reasons people don’t take advice is that they feel they don’t need it. Our research shows there is a lack of understanding of basic facts which should be taken into account when making plans for retirement, and future financial health.

“We understand the role that advice and guidance can play in helping less confident people make financial decisions that are more suitable for them in the long run, but it is also the case that there is a need for services like these for people who think they are doing the right thing but really aren’t, because of a lack of knowledge.”

One area that has been widely identified as concerning is the tendency for people to keep all of their savings in cash. Whilst there is a clear role for cash alongside other savings strategies, to meet a range of savings needs, long-term savings can be adversely impacted by an over-reliance on this alone, particularly when interest rates are very low.

One of the reasons people don’t take advice is that they feel they don’t need it. Our research shows there is a lack of understanding of basic facts which should be taken into account...
Mary Harper, MD Aviva Financial Advice

Recent research by the FCA identified that £10K saved in cash in 2008 would have been worth £11,720 by 2018, but if the same amount had been invested, it would have been worth £21,905 by the end of the same period.2

However, 70% of our ‘confident’ savers said they would rather play it safe in cash than invest.  

Mary Harper commented: “Even simplified advice and guidance can be really useful in getting people used to the concept of investments, and more comfortable with the concept of risk and return. 

"Many consumers think they are doing the right thing by putting money aside in cash, but in the ultra-low interest rate environment, they are not only missing out on higher returns that could be available even in low risk investments, but also run the risk of inflation eroding the value of their savings over time.”

The research indicates strongly, however, that the benefits of financial advice are not understood, even theoretically, by those who don’t use it, and also suggests that they may not understand the consequences of what they are doing with their money. 

Whilst 62% of advised customers agreed that having a financial adviser had definitely prevented them from making significant financial mistakes, in stark contrast, only a quarter (25%) of non-advised respondents conceded that they had made financial mistakes that would have been avoided if they had received advice. This does suggest that non-advised customers are probably making mistakes with significant consequences without being aware of it.

Similarly, only 16% of non-advised respondents think they would be better off with financial advice, but 64% of advised respondents said having an adviser had made them better off. Moreover, 63% of advised respondents agreed that having a financial adviser improves their overall well-being, and 69% also agreed that it brings peace of mind.

Mary Harper commented, “If we are to make advice more accessible to more people, it’s really important to understand what we need to do to create a menu of services that offer different things, rather than expect everyone to be comfortable with one model. 

"The number of people receiving financial advice in the UK in 2019 (4.1m) was significantly higher than in 2017 (3.1m), and this is encouraging, but it’s still only a small proportion of the number of people who could benefit. 

"Understanding more broadly what affects people’s willingness to engage, and overcoming any fears or pre-conceived ideas they may have, can only be helpful in offering more advice to more people, in ways that they are comfortable with, and thus helping bridge the advice gap in the UK."

-ends-

Sources

1 Research commissioned by Aviva Financial Advice in January this year, and carried out by Censuswide, amongst 2,000 respondents, The research, which was conducted by Censuswide specifically looked at responses to basic questions about financial matters, which a confident or savvy saver would know the answer to, and then split the response by those who said they were confident in making financial decisions vs those who declared themselves not to be.

2 Evaluation of the impact of RDR and FAMR, FCA Report, December 2020


Enquiries

Catherine Comben

UK Insurance Media Relations

Notes to editors:

  • For information on how Aviva is helping our people, customers and communities impacted by COVID-19 visit: www.aviva.com/covid-19-our-response/
  • We exist to be with people when it really matters, throughout their lives – to help them make the most of life. We have been taking care of people for more than 320 years, in line with our purpose of being ‘with you today, for a better tomorrow’.
  • In 2020, we paid £30.6 billion in claims and benefits to our customers. 
  • Aviva is invested in our people, our customers, our communities and our planet. In 2021, we announced our plan to become a Net Zero carbon emissions company by 2040, the most demanding target of any major insurance company in the world. This plan means Net Zero carbon emissions from our investments by 2040; setting out a clear pathway to get there with a cut of 25% in the carbon intensity of our investments by 2025 and of 60% by 2030; and Net Zero carbon emissions from our own operations and supply chain by 2030. Aviva has been leading this agenda for decades: Aviva was the first international insurer to go operationally carbon neutral in 2006 and we are champions of renewable energy and energy storage at our offices, allowing us to achieve our 2030 carbon reduction target (70% reduction on 2010 levels) 10 years early. Find out more about our climate goals at www.aviva.com/climate-goals and our sustainability ambition at www.aviva.com/sustainability.
  • Aviva is a Living Wage and Living Hours employer and provides market-leading benefits for our people, including flexible working, paid carers leave and equal parental leave. Find out more at www.aviva.com/social-purpose
  • We are focused on the UK, Ireland and Canada where we have leading market positions and significant potential. We will invest for growth in these markets. We will also transform our performance and improve our efficiency. Our transformation will be underpinned by managing our balance sheet prudently, reducing debt and increasing our financial resilience.
  • Total group assets under management at Aviva group are £535 billion and our Solvency II capital surplus is £13.0 billion (FY20). Our shares are listed on the London Stock Exchange and we are a member of the FTSE 100 index.
  • For more details on what we do, our business and how we help our customers, visit www.aviva.com/about-us
  • The Aviva newsroom at www.aviva.com/newsroom includes links to our spokespeople images,  podcasts, research reports and our news release archive. Sign up to get the latest news from Aviva by email.
  • You can follow us on:
  • For the latest corporate films from around our business, subscribe to our YouTube channel: www.youtube.com/user/aviva  

More from our Newsroom