The Future of Advice

Expert: Matt Ward, Communications Director, AKG 

State of play:

• The session was presented by Matt Ward of AKG, a firm who focus on assessing the financial strength of financial firms. They have recently conducted research on the Future of Advice and their presentation was underpinned by the results of this data as well as the broader strategic picture. They have recently gathered data to explore the advice sector to see how the industry had reacted in light of the Covid 19 pandemic and have looked at the various challenges faced by the advice sector across a range of timelines. The data was gathered towards the end of July and the session started with the expert sharing some of the key insights. The data focussed on how firms overall were going to be balancing their servicing models moving forward - given all that has taken place in the last six months, what have we learned and how firms can best respond. 

Delivering sound advice 

• Since the theme focussed on the future of advice and the value of advice, the discussion started with the quality of this advice, and how the industry can continue to attract good talent to be able to deliver it.
• The first delegate posited that if you can demonstrate the value of good advice, and how it can help people and make a difference to them, that in turn leads to great job satisfaction in being able to deliver this. If you can evidence this to new joiners, it is a good motivator to join the industry. However, it was noted that there is a supply/demand imbalance and good people are hard to come by. It needs to start with graduates and one delegate gave the example of how Schroders Personal Wealth had recently started a new training academy for graduates, as they realised that the number of people they needed to hire simply didn't exist. It is a straight supply and demand issue. The discussion then moved to the client and how in delivering advice, there has been a big focus on baby boomers as if this was the only game in town. Delegates agreed that advice is about covering all life events, not just retirement. As one delegate put it:

“If you wait for people to retire you've missed all sorts of opportunities and life events – Covid19 is a life event and it will be right up there when you ask people how it affected them."

• The pandemic has affected peoples' lives, their career, their financial situation, the time they spend with their family, their aspirations on retirement, and caused them to reassess what they live on and what's important. However, it was agreed that most consumers don't have a good grip on their true financial position and what they need in retirement, so the opportunity is certainly there to do some good. There is a good story to attract people to join the industry.
• One delegate from a family office felt that even in dealing with UHNWs, the quality of advice differed significantly and still wasn't great. While there is a different set of challenges and complexities, as UHNWs tend to have a circle of advisers, along with multi-jurisdictional challenges, there can be internecine wars between advisers defending their own role and position and the family office ends up mediating and in a co-ordinating role. It is still a quality issue even at that level.

"People often pay a lot of money for advice and don't compare it or get a second opinion until they've spent quite a lot of money - we have a case where that's happened. What people are looking for is someone to cut through things and think about what they're trying to achieve. You can end up with a lot of complexities which often just aren't necessary - simple is best even at the UHNW level."

Engaging the younger generation

• There is certainly a quality issue for private client advice at all levels. In terms of giving advice to the younger generations, it was observed in one delegate's experience that their own (older) children go to extreme lengths to avoid engaging with their adviser by phone or in person. They simply don't want to speak so it is very important to find a new way to engage with youngsters. A genuinely engaging online process is required before a human gets involved. Again, it is similar with UHNWs in that they too want new ways to engage - it's not just about a basic risk profile – a lot of people don't have that good an overview of their personal situation which is so important and that's true at all levels. 

• Delegates felt that for both UHNWs and next gen clients, the industry needs to find new ways to engage and that bit hasn't been solved yet. If advisers don't have overview it is hard to make decisions without the big picture view. The expert had picked up on how generational issues are to the fore, even more evident in the pandemic, and in dealing across five generations, they can all be very different. It was agreed that baby boomers were not the only game in town despite being immediately important from the revenue perspective. The way that firms maintain business has to change also and it’s not just about having the technology, it has to work really well. 

Humanising the advice process

• Another delegate felt that humanising the advice process in order to bring in and attract good talent to the industry was becoming more important to an end client. Questions such as Do you understand more about ESG than your clients do? suddenly become very pertinent. If it’s the other way around, it’s very difficult to maintain the advice model. While it may be that getting younger clients to physically speak to someone is a challenge, if approached in a different way such as asking them what's important to them, it may be the economy, politics, the environment or other topics, they can be very opinionated. So, if a firm is bringing talent into the advice industry – the ability to address their issues and impact the client's lives is really important. 

• Delegates also agreed that it could be challenging to communicate the benefits of advice. One delegate opined that while it was all about engaging across the generations and the difficulties to get the younger ones to engage, it all changes when they want a job and they can be very engaged when they want work experience for example.

“We run training courses for larger groups of clients’ offspring and that stimulates them to get involved more. It is all helpful, we make it fun and interactive, and don't frighten them off. We don't use acronyms, and things like the new kid on block - ESG – is very important to the younger generation. We want fund managers to be proactive, to tell them about it, and if they don’t, they need to wake up to get up to speed on ESG to engage with the younger generation.”

• The delegate went on to explain that they try to make this important time as one to one as possible. Participants also assigned projects whereby they have to interact with advisers at the firm, so that they feel busy and involved. Often when you quiz people about their work experience, they don’t remember much about it, so that says a lot. 

When is the best time to seek advice?

• Moving on to discuss when advice is sought, it was agreed that the challenge is encouraging individuals to seek advice at the right time without it becoming a sales push. If you follow the logic, complex clients and taking into account their varied needs and age, and how they require advice are very different to younger generations. We all know how product pushing and advice has often been linked to products, so clients are cynical about seeking advice. One delegate pointed out that there is often an overlap between discretionary and advisory services, as opposed to seeking planning advice. While the majority of clients tend to sign up for a discretionary mandate, the advisory mandate is more onerous under the Mifid II world and many people don't want to spend that amount of time on their finances. However, professional clients who already work in finance themselves have different needs, so the right advice defines who you need and how you are serviced as a client.
• One delegate pointed out that their firm had blurred boundaries between advisers and investment managers as many are qualified to do both. The advice sector is growing and some firms have launched academies to train their own people. This gives the advantage that internally trained colleagues have the right attitude. It was also agreed that there is a changing nature of advice – which used to be more a case of delivery of information whereas now it is far more interactive. In the past there was a relatively narrow range of solutions that were right for a client, but now there are a multitude of different ways and solutions. Clients need to better understand their options and there are many more softer nuances about what needs to be delivered in order to meet the client’s objectives. Clients have non-financial objectives too and it is important to show the value of advice by broadening the range of services to reflect people's differences. One delegate said:

“I would have previously resisted passive investments, but my scepticism and costs have overridden it and if clients are more comfortable with this, we should offer it alongside our active approach. It’s the same with collectives vs direct stocks. Emotionally the whole experience of investing can feel like a different ride if you use different vehicles. You need to deliver whatever the client is after and that is the value of advice.”

• It was noted that the future and value of advice was a very wide-ranging topic as evidenced by all the different threads coming through in the discussion. As one delegate framed it, it is ultimately about whether or not the clients know what they need to do to achieve their objectives, combined with the strength of the relationship between the client and adviser. If the basic building blocks are in place, then it’s not hard to put things into action. 

In conclusion

• The discussion concluded with a final question around fees, and how clients wanted to pay for the advice they receive, particularly with the new levels of fee disclosure that have now been in place for 18 months. While the consensus was that fees are largely still calculated as a percentage of Assets under Management, clients have certainly been surprised in many cases at to how that works out as a real number. There is continued downward pressure on fees but clients need to recognise that cheaper is not necessarily better. Being able to demonstrate flexibility is key and different fee structures might apply at different points in a client’s wealth cycle. Often when a financial plan is being drawn up, there is a lot of work at the outset, or immediately on retirement, however that drops off considerably once everything is in place so the fee structure may need to change, and demonstrating that flexibility is important. 

• It was acknowledged that everyone knows what an ideal firm should look like, and it is very different to what was in place ten years ago. Technology developments, the components of a successful business, and the breadth of roles now on offer within a firm, have changed the industry immeasurably.  However, the need to demonstrate the value of advice has never been stronger.