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Mind The Gap - Pennyworth co-founder and CPO, Ben Harvey, on the UK advice and value gap

Updated: Sep 5, 2022

Mind the Gap

Most people are hard at work aspiring to live their best lives but are often too busy or unsure about how to get the most from their money. Unfortunately, traditional banks don’t help. They don’t offer anyone but the very wealthiest people financial planning and offer everybody else poor savings rates and high borrowing costs. The result is a value and advice gap.

Advice gap

Very few consumers get advice or guidance on their finances - just 28% according to the latest available stats from the Financial Conduct Authority (FCA)*. They found that “services on offer from the market are not always the ideal fit for all mass market consumer needs”.

Pennyworth’s own research supports the view that mass-affluent consumers aren’t getting the type of financial advice or guidance they need**. We found that 72% of aspiring affluent consumers were unsure about what change to make to their finances and 64% told us they were too busy to review their finances. This was despite the fact 90% don't feel like they’re getting the most out of their money.

The FCA says the low levels of guidance and advice “lead to a potential harm, which is that many consumers are missing out on the opportunity to invest their money and make it work better for them in the longer term”.

It's certainly true that many consumers hold too much of their investable assets in cash (of those consumers with more than £10,000 of investable assets, 37% did not have any investments at all and were holding their assets entirely in cash, and a further 18% were holding more than 75% of their investable assets in cash).

Many short-term needs are best served by cash saving with instant access to the savings when needed, but for longer term goals people historically have seen better returns through investing excess savings. But how do people know how much to hold in cash and what they should do with the rest? Before this they really need to understand their goals and how much they may need for them.

Why is no one solving this problem? In short, there has not yet been enough competition and innovation. The FCA stated that “Advice firms appear to face little competitive pressure to innovate and offer new, more affordable services, or to try to attract less wealthy consumers. Competition does not appear to be operating effectively in the interests of consumers. They went on to say that “we think more can be done to provide support to mass market consumers, to help them engage with their finances and make better investment decisions. This could include more tailored guidance services”.

Many advice firms see little incentive to cater to less affluent consumers, when they have a steady supply of affluent, and more profitable, customers looking for holistic advice.

In recent years robo-adviser services have entered the market but only 1.3% of UK adults used an automated online investment or pension service in 2020. Although this has certainly increased over the last 12 months due to the impacts of the pandemic, it is still a fractionally small % of the market. The FCA found that these services don’t yet provide competitive pressure to more traditional advice services.

At the guidance end of the market, traditional banks are not solving this problem either, with only 20% of those surveyed by the FCA saying that Bank literature helped them a lot in making investment decisions.

The FCA believes “the market would benefit from greater development of simpler forms of streamlined advice, and more personalised guidance services, both of which can be accessed in a more flexible, transactional way”. We agree.

Value gap

Latest Bank of England (BoE) figures show that in Dec-21 Instant Access Savings balances of UK households had grown £200bn since the start of the pandemic to reach almost £1.0tr in total. In addition, UK households also now hold nearly £260bn in current accounts - an increase of almost £80bn in the same period. When including Term Deposits and Cash ISAs UK households now hold £1.7tr in cash savings.

The most staggering thing is that the largest 6 banks and building societies (Barclays, HSBC, Lloyds, Nationwide, Natwest, and Santander) still hold almost 90% of primary current accounts (ie those with a salary paid into them), and 70% of savings accounts and almost all overdrafts are with these same primary banks***. The majority of the £260bn current account balances receive zero interest and the instant access savings rates are still languishing at 0.01% despite the BoE base rate rise in December.

The cost of financial advice for those with relatively small balances can also be prohibitive, with bank-tied and independent advisors charging annual fees of 2-3% of funds. Digital and robo advice offers for many a perfectly sensible alternative that is significantly cheaper, costing typically less than 1%.

In regards to borrowing, the latest BoE figures show that UK consumers hold outstanding balances on credit cards of £44bn at an average interest rate of 21.4%. Consumers also borrow short-term on overdrafts with the traditional banks charging high interest rates (typically 19-39.9%^) to all customers with little or no personalisation. Consumers also hold outstanding balances on unsecured loans of £112bn with the traditional banks typically charging very low-risk mass-affluent consumers 50-100bps above the best rates in the market^^.

This tells us that the traditional banks have still not been truly challenged, with the majority of balances being retained and profits of these banks remaining high. It highlights that there is still a problem of unrealised value by UK consumers.

Our mission at Pennyworth is to solve this. To build a bionic bank for busy people, so they can reach their goals. Closing the value and advice gap with AI-driven tailored finance:

  • Reach your goals. Our solution is a goals-based financial planning app. We believe in goals-based planning as research shows that setting goals is one of the most effective ways of achieving your objectives. We also know that many find the process mentally effortful. Pennyworth’s financial planning technology helps you discover, set and track your most important goals easily and turn them into a financial plan at the click of a button.

  • Bionic banking for busy people. Our vision is to truly remake banking for the twenty-first century. With new bionic capabilities that put a private banker in your pocket to provide personalised guidance. Helping you reach your goals faster and more confidently with leading rates, tailored savings strategies and a bespoke borrowing line. Building the UK’s first AI-powered bank with human support, aimed at the 10 million UK aspiring-affluent consumers that face the most serious value and advice gap.

Check out how the Pennyworth app works in our video or try it yourself by downloading from our website.


*FCA, ‘Evaluation of the impact of the Retail Distribution Review and the Financial Advice Market Review’, December 2020; FCA Business Plan 2021/22. Published: 14/07/2021 Last updated: 19/08/2021

**Pennyworth pioneer survey: ‘My banking and me’, Oct 20, n=373.

***PwC Strategy& analysis, Mintel; Verdict Financial

^Bank and Building Society websites 02/02/2022

^^Bank and Building Society websites and 02/02/2022


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