- Written By Rubina K. Hossain, CFP®
Rubina K. Hossain, CFP®
Certified Financial Planner™ Professional
Certified Financial Planner Rubina K. Hossain is chair of the CFP Board's Council of Examinations and past president of the Financial Planning Association. She specializes in preparing and presenting sound holistic financial plans to ensure her clients achieve their goals.Read More
- Edited ByEmily Miller
Managing editor Emily Miller is an award-winning journalist with more than 10 years of experience as a researcher, writer and editor. Throughout her professional career, Emily has covered education, government, health care, crime and breaking news for media organizations in Florida, Washington, D.C. and Texas. She joined the Annuity.org team in 2016.Read More
- Published: August 6, 2021
- This page features 3 Cited Research Articles
- Edited By
Research suggests approximately 90 percent of the U.S. population does not receive professional financial advice. This lack of guidance to a significant number of Americans is known as the advice gap.
With employer-sponsored pensions becoming a thing of the past, individuals, especially those nearing retirement, have a critical need to take ownership of their financial futures.
As a certified financial planner, I know first-hand how sound financial advice — or the lack thereof — can impact families. I spoke about the advice gap at the recent #NEXGEN21 Global Financial Planning Conference. Here are the key takeaways from my research.
What Caused the Advice Gap?
To solve any problem, we must first understand the root cause. And, as with many challenges, the advice gap can be attributed to several factors.
Many people don’t know how or where to seek financial guidance. Others believe financial planning is too expensive for them. And some find the industry to be intimidating.
The financial services community bears a lot of responsibility in creating confusion. For one, there are roughly 212 designations for financial planners. And some focus on selling various complex products –not providing advice. Compensation structures in which advisors generate revenue from commissions and investments further complicate the perception of the industry.
Ramifications: The Advice Gap and Income Inequality
The advice gap can exacerbate income inequality, which disproportionately affects people of color. As of the second quarter in 2021, a median white worker earned 27 percent more than the Black worker and 30 percent more than Latinx worker, according to the U.S. Bureau of Labor Statistics.
Historically, vast levels of income inequality have led to civil unrest.
“It is almost universally true that violence has been necessary to ensure the redistribution of wealth at any point in time,” according to Walter Scheidel, professor of history at Stanford.
Income inequality also impacts physical health, mental health and overall peace of mind. Financial planners also tend to serve as financial therapists, and they can play a huge role in correcting the lack of assistance.
Solving the Advice Gap Problem From 3 Angles
Whether you have a passion for serving others or work professionally in the finance space, there are key steps you can take to help close the advice gap.
Learn Finance Fundamentals
Finance fundamentals include the concepts of credit, basic banking and ATM machines. Tyrone Ross, who has been recognized as one of the few people to change wealth management, says one way to communicate the fundamentals of everyday finances to those in need is to encourage pro bono service for all financial professionals, like attorneys do.
I was blessed to have a mother who was a banker and taught both my brother and me general concepts of financial planning, particularly when we were in high school. I recall not being able to leave the kitchen table without balancing my checkbook. This is unusual coming from a patriarchal heritage.
Not everyone is as fortunate.
While volunteering as a pro bono financial advisor for a helpline, I spoke to a recent college graduate who had been working for her state government for more than a year. She did not understand the basics of savings. She wanted to know what to do with the money she has leftover in her checking each month.
Sadly, this college graduate represents a large majority of Americans who need help with finance basics. Pro bono advice firms need to be more readily accessible.
Encourage Democratization of Financial Planning
Most of the population not receiving financial planning advice is almost akin to them not having access to basic health insurance. Firms, such as Facet Wealth, Ellevest, & Creative Planning, have been created to focus on diversity and racial justice both internally and externally. They embody the mission of bringing financial planning to the underserved, or the democratization of financial planning.
Seeing diversity in the financial planning community can help bridge the divide in the advice gap. Employers should also consider offering financial coaching and education, such as SmartPath, as a benefit to their employees at little to no cost. Financial stress is one of the leading causes of mental and physical sickness, so financial wellness is a win-win for all involved.
Support Financial Education in Schools
Students are now demanding personal finance education classes as a graduation requirement. They realize the economy fluctuates, and they want to learn how to manage their money.
Mandating financial education in schools, like the way math and English are required, can empower and inform the young with much needed financial literacy. Ask your government officials to support a financial curriculum — including tax education. This important curriculum could become a requirement in the school system and taught with respect to gender, race and culture.
For example, my heritage is Pakistani, and traditionally both life insurance and interest-based loans are discouraged. Through education, misconceptions can be addressed, and starting this at a younger age is impactful.
I have personally seen the positive impact financial education can have at a younger age. My daughter had the opportunity to do a certification in financial literacy before she graduated from high school. Now as she enters her fourth year of college, she has mastered budgeting and living below her means. Granted, she also had an advantage with both her grandmother and mother being financially literate.
The actions and inactions of financial planners can directly impact others. It takes a committed group of professionals and a receptive group of consumers to successfully address and champion the advice gap — and there is no better time than now.
3 Cited Research Articles
Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.
- Bureau of Labor Statistics. (2021, July 16). Usual Weekly Earnings of Wage and Salary Workers Second Quarter 2021. Retrieved from https://www.bls.gov/news.release/pdf/wkyeng.pdf
- Dancu, E. (2017, January 24). Stanford historian uncovers a grim correlation between violence and inequality over the millennia. Retrieved from https://news.stanford.edu/2017/01/24/stanford-historian-uncovers-grim-correlation-violence-inequality-millennia/
- Innovating Advice. (n.d.). #NEXTGEN21 Global Financial Planning Conference. Retrieved from https://www.innovatingadvice.com/conference