According to a recent article from the Guardian, there are currently more than 4,000 different budget planners, spreadsheet templates and expense-tracking programs available on Etsy to help people with so-called ‘zero-based budgeting’.

A method for planning out personal finances, zero-based budgeting means ensuring that when you subtract your monthly outgoings from your income, the end result is zero. It forces you to run a tight ship by keeping track of every pound. One clear goal is to avoid debt – but ideally, the aim is to generate a leftover sum to act as a financial cushion, or ‘useful surplus’.

As the cost-of-living crisis rumbles on, interest in zero-based budgeting has rocketed. But there is concern that, because of the way the market is evolving, many of the tools are potentially dishing out advice that isn’t accredited.

That raises questions over the role of accountants within this trend – and the field of personal financial planning in general. In reality, an expert tells us, for both economic and practical reasons that role is somewhat constrained. The outcome is a notable gap in the provision of advice. But it is an issue that accountants can help to address.

Wheel of life

For ICAEW Head of Personal Financial Planning John Gaskell, one of the main challenges is that the financial advice sector leans towards those with accumulated wealth.

Six years ago, with the support of external stakeholders, Gaskell set up ICAEW’s Personal Financial Planning Community. Through webinars, conferences and other resources, the group provides members with information and insight on what Gaskell calls ‘financial resilience’ around the entire ‘wheel of life’ – so, from the earliest stages of their careers, whether setting up in practice or entering employment, all the way through to pre-retirement, retirement and the later years.

Gaskell says that financial resilience is critical to sound mental health. However, the traditional priorities of the broader advice system have left, and continue to leave, many people out in the cold.

“By focusing on people with accumulated wealth, firms can provide, say, investment management services in a way that will generate an economic return,” Gaskell says. However, the complex nature of regulation means that delivering even straightforward advice in an environment regulated by the Financial Conduct Authority (FCA) becomes very costly, “not just because of the time, but the due diligence evidence you’re required to prove,” Gaskell explains.

The consequence is what Gaskell calls ‘financial advice exclusion’ resulting in ‘the great unadvised’, representing a majority of the population but particularly younger demographics. “It’s a conundrum that has been going round in circles for decades,” he says.

Guided mindset

In the past 15 years or so, efforts across both the public and private sector to square that circle have emerged. They include the FCA’s Simplified Advice initiative designed to nurture a more inclusive market for financial advice at retail level. Meanwhile, tech solutions such as Nutmeg sought to make investment products more accessible to people on average incomes.

However, Simplified Advice failed to take off and platforms such as Nutmeg have tended to focus on gathering assets and providing investment management services, rather than offering generic personal financial planning advice.

“I would argue that around 75% of personal financial planning advice is generic in nature, in other words, advice that provides the building blocks of what I call a ‘guided mindset’ around personal finances and translates industry jargon into English. The lack of a face-to-face guide or mentor is a persistent problem. And this is where I think accountants can help.”

In Gaskell’s view, accountants have all the skills at their disposal to fill the vacuum left by the high street bank manager – the person who would shake your hand, welcome you into a side room and serve as a sounding board for your ideas and concerns. And one audience where accountants could be more proactive is SME owners and microbusinesses, where there is likely to be a large overlap with the great unadvised.

Reducing risk

One context in which this could work is with people who are thinking of becoming self-employed, Gaskell believes. “An accountant is ideally placed to do a helicopter assessment of their finances and look at which benefits they will lose when becoming self-employed. Your pension and life assurance are two key examples. So, let’s think about how to fill those gaps. And while we’re at it, let’s look at what shape your cash reserves are in for getting you through the first six months.”

It is essential to carry out a feasibility and challenges study, Gaskell stresses. “Examining those points at the outset is critical. And tackling them head on will reduce the risk of the business failing.”

In addition, accountants should take steps to connect such clients with a trusted network of FCA-regulated advisers, such as specialist mortgage brokers to address housing-ladder difficulties. They could also help to familiarise those individuals with certain financial services products that can meet their needs at a generic level.

Further along the lifecycle, accountants could link microbusinesses to providers that can help them access finance. Gaskell says there are a number of new, non-mainstream entrants to the market with the mission to provide grassroots assistance – and ICAEW is always interested in forming relationships with players who can help SME owners.

All told, Gaskell considers accountants well suited to the role of ‘personal finance director’ – someone who will partner with clients and act as their copilot to help them navigate choppy waters. “The power of listening is crucial,” he says. “You must have both the communication and empathy skills to understand what is really driving your client. Very often, an accountant will focus on the business entity. But they mustn’t lose sight of factors that are driving the client in the arena of their personal life.”

Join ICAEW’s Personal Finance Planning Community today. Membership is free and open to everyone, including non-ICAEW members.