The next generation of consumers will soon have the most spending power of any generation. Whether you label them Generation Y or Generation Sociall or just simply anyone under 30, accounting for around a quarter of the UK population, they cannot be ignored; especially as they are poised to inherit what is left of the Baby Boomers’ wealth.
They are the Facebook generation; the first thing that nearly half of 18-34s do in the morning is check Facebook. They are connected in a way that our generation does not completely comprehend.
Two years ago, time this generation spent on social networks overtook time spent accessing emails and search engines. This is how the next generation uses the web. For them, email is a static, disconnected and dying medium. They are continually interacting with their ever changing and growing network of contacts. They are, quite literally, always on.
They are also the DIY generation. They meet all their travel needs online (as do most of us now) – and they take advice from TripAdviser and their Facebook peers.
They do their banking online. They have no need for a cheque book. They have no need for a landline either. Their mobile is their window to their world. They book taxis from their phone; restaurants, movies, shows, takeaway dinners. They use their phone to shop – for everything.
So let me try to sum up this situation succinctly. The next generation does almost everything themselves via their phone, would rather receive recommendations from their networked peers than a single professional and, in much the same way as they see no need for a travel agent, a large proportion will also see no need for a financial adviser.
Oh, and I forgot another key trait – many have little time or trust for large, faceless insurers and “morally challenged” banks.
Unlike their parents, they respond negatively to excessive marketing, with almost half of them regarding social media as their “preferred method of sharing positive experiences with a brand/product” (according to a survey by eMarketer).
According to Nutmeg, 86 per cent of people in a recent survey said that they would like to sack their parents’ financial advisor.
Houston, we have a problem!
But it is a problem that we can overcome. It is also a problem that we must overcome.
If we wish for our organisations to survive further than the next decade, we must make sure that our products, services, brands, customer experience and access channels are all relevant to the next generation. This is true whether you are an adviser, an insurer, a fund manager, a bank or an online direct-to-consumer business.
The first step to achieving this is to hire the brightest of the next generation to lead this charge. You need the next generation to sell to the next generation.
Advisers innately understand this. They have been matching advisers to clients throughout their careers. They know that 50 year olds find it easier to buy from 50 year olds, that women find it easier to buy from women – matching the sales person to the customer is simply good salesmanship.
The challenges for the industry as I outlined in the previous two instalments of this series is that graduates are not opting for financial services in the numbers they should be and the numbers of young people joining adviser firms has slowed to a trickle. Both of these must change.
The second step is to take a long hard look at your products, services, culture, brand and customer service. You need to look at all of these through a completely different lens; through the eyes of the next generation customer. And that will mean your business needs to get online, get connected and get social.
We don’t need to wait for the next generation to know that people buy financial services online.
Around 88 per cent of today’s customers start looking for financial advice and services online, according to recent research by Google. For mortgages and other financial products, this number is 62per cent and they are happy to spend more than 11 hours on the web before settling on a product. Just as it is with travel, a significant number of people already want to do it themselves online.
Allow me now to highlight a few companies who have taken the leap – not into the unknown, but into the future.
RPlan. The effervescent Andy Creak has launched a web-based business aimed at the DIY, connected investor.
His team has built an easy-to-use interface which allows the user to analyse their investment portfolio and buy and sell funds (using the Cofunds fund engine).
RPlan has since leveraged its expertise to build investor front-ends for other organisations including large fund managers and investment banks. It has also launched a Facebook-style community of investors which was the original driver behind the creation of RPlan.
Research by Ernst & Young indicates that 16 per cent of financial services customers now use online blogs and communities for researching future purchases, an increase of 355 per cent in just one year.
Creak’s philosophy is that buying and selling funds is a commodity play and that genuine value can be generated by being the facilitator of community of investors.
In fact, his vision is that the majority of RPlan’s revenue in the future will be the £5 a month charge to be a member of their online community. RPlan has no plans to offer advice, merely to connect people interested in investment. It offers the ability for you to manage your investments, buy funds, sell funds and connect with like-minded investors. Any investment decisions are yours and yours alone.
Nutmeg. A completely online discretionary fund manager. I have it heard it described as “a DFM with a web site” but that simple label would be missing some critical elements of the Nutmeg proposition, and those are simplicity, transparency and access.
In fact, I would turn the comment around. Every DFM should have such a web site if they wish to attract the next generation. Nick Hungerford made the decision to form Nutmeg during his MBA at Stanford when he was bemoaning the fact that, in the age of the internet, the world of investing should be available to all rather than to a select few.
His tutor and Google CEO, Eric Schmidt, turned to him one day and told him “to stop moaning and sort it out”. Hungerford believes that with the advent of the RDR, “the revolution in financial services is just starting”. He believes that hundreds of new businesses will appear in the upcoming years offering consumers a mixture of information, DIY capability and advice.
Nutmeg’s interface is simple to use, highly graphical and interactive. The experience starts with a 10 minute process of understanding what you as the investor is trying to achieve and why – and helping you work out your attitude to risk.
Nutmeg then builds a portfolio for the investor and gives them the ability to access that portfolio 24/7 and track how well they are performing to achieve their stated goals.
The minimum investment is £1,000 a fund and Nutmeg charges a 1 per cent annual fee, reducing to 0.3 per cent with portfolios over £500,000.
The On-line Portals
Moneyvista. Part of the Royal London Group, Money Vista is a comprehensive information portal on all things financial services, covering everything from setting goals to budgeting, insurance, savings, borrowing, property and tax.
It enables the user to create their own personal financial plan with the assistance of “over 250 guidescovering everything from basic money management to complicated investment scenarios” and “access to financial experts who will answer all your personal finance queries”.
I found the very comprehensiveness of the experience to be quite overwhelming. Like a shopper with too much choice, I was left with a strong desire to do nothing. Worse than that, the thought of a computer telling me that I was never going to have enough savings to retire would have seen me reaching for a bottle of gin, a sharp razor blade and a warm bath. I am happy for a person to “disturb” me in this way, but not a web site.
In my opinion, the tone of the site, whilst welcoming, is not the answer to attracting the next generation, and due to the fact it states very clearly that “we won’t try and sell you any products”, I am not sure what it is the answer to.
It has a wealth of information and does not compete with Royal London’s money-making, IFA-centric businesses. Whether the group can afford to continue to invest in it unless it can generate revenue in its own right will be the key to its survival.
LoveMoney is a different take on a similar theme. Spun out from the globally-respected Motley Fool four years ago via an MBO, it is a financial news portal that allows you to compare products across the spectrum of financial services, keep track of your personal finances and even store all of your paperwork in an electronic vault.
But it unashamedly enables you to purchase a large range of retail financial products in the same way as other online broker sites.
Is it a site for the next generation? With its journalistic pedigree, its comprehensive and yet uncluttered interface, its online vault and the capability to compare and buy a range of everyday products from credit cards to insurance, mortgages, Isas and savings accounts, I would say yes, it could very well be.
Money on Toast is unashamedly an online IFA, giving direct financial advice and enabling the investor to buy and sell financial products. It exists to help you invest – and make money from helping you do so. This is one to watch with interest.
RSM Tenon’s new Link2Wealth offering is a new restricted advice proposition offering an online execution-only service and a telephone-based service providing advice on ISAs, stakeholder pensions, general investment accounts and life insurance.
Virtual Adviseris a software and services company being used by an increasing number of advice firms to provide a compliant video-conference style advice session between the client and the advisor complete with real-time visuals and advice processes. It enables a face to face advice meeting with full audit trail and without all the cost and expense of travelling. In a recent survey, 75 per cent of respondents said that they would prefer to do business with a financial adviser over video conference. Virtual Adviser may be on to something here.
It is not just the next generation we need to get ready for; it’s the current one too.
According to research by The Platforum, almost two thirds of today’s investors are looking for a mixture of advice and execution-only.
We already buy GI products ourselves and an increasing number of us want the opportunity to buy simple investment products directly as well.
We also want the ability to take a look at our portfolio and perhaps even tinker with it a little without having to call our adviser.
Every advice business will need to be offering their clients the ability to perform such tasks directly. Iif they do not, clients will end up using one of the pure D2C businesses – and the adviser may never even know.
As Jason Chapman, MD of Willis Owen, said at a recent conference on the subject, “The greatest hurdle we face is not the FSA or RDR, it is our ability to adapt to a changing consumer.” I couldn’t agree with him more.
Campbell Macpherson is MD of consultancy, Campbell Macpherson & Associates. His career has included senior positions at Zurich, Openwork and Sesame.