Financial Coaching vs Financial Advice: What’s The Difference And Why Is It Important?

22 Mar

Stacey Lowman is a financial coach at Claro, the new digital financial coaching app and partner of ours here at Raise The Bar.

Due to the high costs of financial advice which is inaccessible to many of us, the advice gap is a trend that has triggered a surge in demand for financial support and guidance. This demand has seen a myriad of solutions coming into play: financial coaching, robo advisors, challenger banks, and finfluencers. The market is still forming and is still fragmented, with financial coaching currently unregulated, which leaves many wide open to exploitation. Claro is on a mission to change this.

In this episode Stacey tells us how, for many of us, our relationship with money has changed over the past year due to the pandemic. I ask her what we should be doing now, as the UK begins to reopen, to balance our long-term financial goals with our short-term needs to socialise, travel and generally rebuild our lives. Stacey demystifies the 95% mortgage offer with practical advice for first time buyers, and we discuss the significance of language when it comes to money matters.

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THIS EPISODE IS SPONSORED BY

This episode is sponsored by Claro, the digital financial coaching app. Sign up for early access today and protect 25 trees in the Amazon, visit https://claromoney.co.uk/raisethebar/.

Data and Episode Resources:

The cost of Financial Advice
- It can vary widely, but advisors generally charge a % in the range of 0.75-1% of assets under management on an annual basis, with initial fees on top, which again is normally a % of the amount they are managing on your behalf.
- There may also be minimum amounts advisors will charge, for example £1,000 upfront, but this can vary too.
People who took financial advice ended up £40-50,000 better off over a ten year period - What it's worth: Revisiting the value of financial advice (report by Royal London and International Longevity Centre)
- The group they identified as ‘just getting by’ benefitted even more than the group they identified as ‘affluent’. So potentially the people feeling like they don’t have enough to justify speaking to a professional may well be the ones who might benefit the most.
Claro conducted a national survey in partnership with Mental Health UK and The Money Charity to understand the relationship between money and mental health. We found that the impact of lockdown on financial confidence is surprising.
- Over two-thirds of UK adults (68%) reported no significant change in their overall financial security.
- Only 12% reported that their finances had become significantly worse. Whereas 20% had used lockdown as an opportunity to improve their financial situation – i.e. by reducing unnecessary outgoings (such as commuting costs) or creating a clear financial plan.
- Claro also found that people who have been affected financially by the coronavirus crisis are more likely to report higher than average anxiety levels.
Since the onset of coronavirus, 95% mortgages have all but disappeared from the market – leaving many potential homeowners stranded. This scheme is therefore designed to encourage more lenders to re-enter the 95% market. Designed to help those with a 5% deposit get accepted for a mortgage with the Government backing part of the loan
- For you: just like a normal mortgage
- For the mortgage lender: the scheme guarantees that the Government will shoulder some of the cost if the lender lost money
- The scheme opens next month until December 2022
- Eligibility criteria:
  - For your main residential home in the UK
  - Property value £600,000 or less
  - Deposit between 5% and 9% of property price
  - Capital repayment mortgages only
- You'll need to pass a lender's normal mortgage affordability criteria.
- Whether a low deposit mortgage is right for you though will depend on your individual circumstances.
- Lloyds, Natwest, Santander, Barclays and HSBC will offer these mortgages from April. Other lenders are expected to follow