Why are employers terrified of giving financial advice?

Last year, when my car was due for its annual MOT, I went to the local garage and checked it in for the evening. The following day I received the dreaded call where I was informed that my beloved Honda had failed! Unfortunately, the suspension was not up to scratch and needed replacing. Not cheap but with the bill paid, the car was back on the road.

However, after a week or so of driving I realised strange noises were coming from the front right wheel and I could only assume there was a fault with the new suspension. Back the Honda went into the garage and sure enough the new part was found to be faulty and duly replaced (again) free of charge and returned with apologies for the inconvenience.

Why you need an expert

Now let’s replay this scenario but instead of using the garage to repair my suspension, I took it to a friend or neighbour who said they would have a look. Now in this circumstance what recourse would I have for the faulty work? None, other than a general falling out with my friend or neighbour! It is for this reason when the complex task of getting my car through its MOT comes around I go to an expert in a reputable garage.

This may seem like common sense, however many companies and individuals in the UK are doing something similar to the latter with a much more important commodity; their own or their employees’ financial future.

Several employers I have been speaking to often get nervous when they think about paying for a digital financial adviser to help their employees sort out their finances. One of the main sticking points is the fact the service such advisers deliver is fully-regulated financial advice.

Some employers would prefer to stick with ‘guidance services’ which give gentle nudges and sign posts employees to possible solutions. These employers have said they feel if they were to ‘recommend’ an adviser it would make them more liable if said adviser were to do anything inappropriate.

This is where I go back to the example of the MOT. When employees receive advice from a fully-regulated adviser, they get the protection of the Financial Ombudsman if anything were to go wrong. Conversely if an employee uses a guidance service and as a result they take an action which harms them financially they have no regulated recourse to claim compensation other than an expensive legal route.

Scratch beneath the surface

There has been an explosion of digital wealth managers but if you scratch below the surface you will quickly find those offering fully-regulated financial advice are few and far between. This is not because these providers think giving advice is wrong, it is because it is cheaper and safer for the firm to NOT give advice. In the event something goes wrong they can simply say their client took the decision themselves so in no way are they responsible for the outcome.

I understand there is a perceived stigma where advisers are simply chasing their next pay cheque, however in this new era of flat rate digital advice it has never been more affordable or easier to give your employees access to scalable, consistent advice on their finances. People are sensitive about their finances and rightly so but I can’t think of many examples in other industries where people prefer to go with an unregulated service over one which is regulated and gives them more protection.

Ask yourself this question, when it comes to your finances would you rather the ‘neighbour’ took a look or should you call in the professionals?

Phil Blows is director at Wealth Wizards.

This article was provided by Wealth Wizards.