Entrepreneurs who fail to correlate their business and personal finances may miss valuable financial planning opportunities. This oversight can hinder their ability to effectively pursue personal and business goals and passions.
Financial advisers must proactively bridge this gap by helping entrepreneurs understand the full range of financial solutions available and their potential benefits.
The Advice Gap: Unlocking Untapped Potential
Entrepreneurs often seek advice from various sources, including their network, to boost their self-efficacy. But my study revealed a substantial advice gap in the financial planning domain. Entrepreneurs frequently miss opportunities to improve their business and personal finances through financial advisers.
This discrepancy persists in the broad spectrum, including cash management, tax mitigation, personal and business protection, and estate planning, where advisers could add significant value.
Surprisingly, entrepreneurs who work with financial advisers often receive reactive rather than proactive advice. While advisers help in areas like pension planning, my research suggests they do not actively explore strategies to align entrepreneurs' business and personal goals. This advice gap results from entrepreneurs' limited knowledge and uptake of financial solutions, ultimately leaving them potentially financially disadvantaged.
Overcoming Negative Perceptions: The Financial Adviser's Image Problem
Negative experiences with financial advisers have left some entrepreneurs sceptical of the industry. Even for those who work with financial advisers, there is a perception that advisers prioritise compliance, ie, protect themselves, over personalised advice.
Lengthy and formulaic reports have distanced entrepreneurs from financial advisers, eroding trust. This striking commentary from a participant demonstrates this: “I think my biggest thing… I can understand why given the mis-selling in the past, but I feel it (the financial advice sector) spends a lot of time covering itself… it's hard for me to read through the report…. it's like you’ve said this and blah blah blah, then here's, like, 20 pages of boilerplate text means I'm being FCA compliant. But it's actually… I think it's adding no value to me.”
The financial advice sector faces an image problem from past mis-selling episodes and negative media coverage. This negative perception deters entrepreneurs from seeking financial advice, even when it could benefit their businesses and personal finances, as demonstrated when a participant noted “You might not like this. I wouldn't think to go to a financial planner for estate planning because whether rightly or wrongly, I think I'm going to a better calibre of advice with a tax advisor…due to the reputation of the financial advice industry.”
Financial advisers and the sector as a whole must work to reshape this image by providing proactive and client-centric services.
Financial Literacy vs. Financial Well-being: An Unusual Disconnection
The participants in the study in the main did not rate their financial literacy as high, yet they expressed high levels of financial well-being, thus creating an unexpected disparity. This was understandable with some participants, as they had already exited businesses releasing sizable wealth. But this was not exclusive. Entrepreneurs' confidence in their financial futures may be overestimated, potentially leaving them financially exposed to unforeseen events.
