It was naive to think advisers would focus efforts on the opportunities here. Instead, the robos have won
This column is all about naivety. Mine, if you must know. It is also to do with an article I was recently commissioned to write for a consumer finance magazine. I will start with that part of the story.
My commission was to write a piece on the options available for someone with a £100,000 pension lump sum.
As we know, increasing numbers of people are freeing up their money-purchase schemes and placing them into drawdown in order to access some or all of their tax-free cash.
In the process, they are also left with large pots of money they need to re-invest, in many cases for a significant number of years. If so, what might they do with that part of their savings?
At the core of the article were the expert opinions of four of the industry’s finest: West Riding Personal Financial Solutions’ Neil Liversidge, Kohn Cougar’s Roddy Kohn, Tilney Group’s Jason Hollands and Shore Financial Planning’s Ben Yearsley.
What I also tried to do in the article was to identify options other than independent financial advice that potential punters might consider when making a decision about reinvesting their remaining lump sum. Among those options I looked at robo offerings, as well as typical fund platforms like Hargreaves Lansdown, iWeb, Fidelity, Alliance Trust and Halifax Share Dealing.
So far, so good. Now let’s talk about my naivety. Long-term readers of this column have often accused me of being an innocent abroad in my comments about the financial services industry. If so, my naivety goes back a very long way.
Back in the early 1990s, when I began my association with Money Marketing, I was initially so in awe of what financial advisers did that I simply could not understand why the vast majority of the UK population did not seek out their services right away.
I could see that most advisers’ clients were in an older and more prosperous category in terms of household incomes.
Nevertheless, I had a theory that, over time, this demographic would gradually become transformed and a younger generation of initially cash-strapped but intelligent consumers would grow to see the benefits of independent financial advice. They would inevitably gravitate towards advisers in increasing numbers.
I allowed myself to believe that, while a few advisers would not want to have less well-off clients on their books, most others would welcome the opportunity to nurture a generation of 20- and 30-somethings like me, until we all became as financially affluent as their existing clients.
I guess this confession really does mark me out as one hell of a gullible idiot.
In fairness, I have met advisers in the years since then who have done exactly what I just described. There are many who took on a mentoring role with their younger clients, who have benefited financially as a result. The four advisers I contacted for the consumer finance magazine piece are, to their credit, among those who have done just that.
But for my naive vision of the future of advice to really lay down deep roots would have required a business model which accepted that most young clients do not have the financial wherewithal to pay upfront for advisers’ services right now.
Take my two nephews, for example. Both 20-somethings, they work hard and play hard. They have a sensible attitude to money and are willing to consider saving some of it for their retirement (which I consider to be amazing as I never had that much common sense at their age).
At the same time, things need to be made simple for them, as they have neither the time or the commitment to worry about a mass of self-investment options, extensive paperwork and complex price or performance comparisons. They simply cannot be bothered with any of that.
They also engage differently with technology, as well as with human beings. The willingness to sit down in front of someone and be lectured about money is nil. Their willingness to spend half an hour in front of a computer and make decisions on the basis of online advice is much, much greater.
I asked them to take a look at some robo-advice websites like Nutmeg, Moneyfarm and Scalable Capital, as well as a few advisers’ sites and fund platforms, and come back to me with their thoughts. The verdict was massively in favour of robo-advice. In fact, they were raving about their experience on those websites.
Why? The way they could determine their risk levels in minutes, the fact that they could make choices instantly, that once made someone would look after their money and rebalance automatically to reflect changes in investment conditions. In other words, once a decision is made they could forget about it and move on to the next thing.
As I said, I was naive back then. And maybe I am still naive now. But my experience of asking two 20-somethings to test-pilot a few websites tells me that there is something missing in the current financial advice proposition to that age group.
What is the industry doing wrong?
Nic Cicutti can be contacted at firstname.lastname@example.org. Follow him on Twitter @NicCicutti