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Generation gain

IFAs like to think of themselves as the natural place for a consumer to turn for advice but research from Zurich suggests that the reality is vastly different. In a survey conducted by YouGov, only 16 per cent of consumers said they had an adviser. A further 27 per cent said they had previously had an adviser but not presently and 57 per cent said they had never taken financial advice.

Worryingly, at a time when the industry is supposedly moving towards more direct remuneration between adviser and client, the most common objection was the cost of financial advice. This research should send important messages to the industry and especially to those involved in the RDR. I find it hard not to conclude that as an industry we are in danger of believing our own publicity.

Financial websites already have an increasing influence on consumers, with the likes of moneysupermarket.com and MSN Money shortly to be joined by Google Finance UK. I do not believe it is possible to understate the potential impact of a business which has been adopted as the verb for searching the internet for information. That the company thinks it is worth having a dedicated UK financial portal suggests it has serious plans in this area.

Like other multi-nationals, it can build globally but deploy locally, with the cost shared across several countries. It already has beta finance sites live for the US, Canada and China and while it is essential to apply sufficient localisation, the reality is that most core financial needs for consumers are the same the world over. Initially, it is likely that Google will adopt a lead generation model so for the right organisation there may be a wonderful partnering opportunity.

If it starts delivering automated advice, it could become an awesome competitor for the adviser community. Regrettably, our industry has been incredibly slow to recognise that young financial consumers behave in vastly different ways from their parents.

Among younger consumers with a need for financial products, nearly two-thirds of 25-34-year-olds said they have never sought financial advice. This supports my view that the industry is failing to recognise the way in which younger consumers seek out information and that unless this is addressed rapidly, there is a real risk that IFAs will morph as a community into OPFAs – old people’s financial advisers.

There is no doubt that older consumers represent a fertile community from which to harvest clients and profits. Over the last 30 years, the majority of the effort of the UK investment industry has focused on helping baby boomers accumulate wealth for their retirement. As a result, 45-60-year-olds account for 20 per cent of the population but have 70 per cent of the wealth. As they are reaching retirement, unprecedented numbers are moving abroad.

This is raising some interesting questions such as how long will they stay abroad, are they permanent ex-pats or, as their health declines, will they return to the UK for their final years? The French government has already removed healthcare benefits for foreign citizens under retirement age. Given the dramatic cost of later life healthcare, is it reasonable to expect other EU states to fund the cost of elderly UK citizens’ healthcare while we as a country mop up large numbers of talented young healthy migrant workers to support our economy?

This is just one example of an increasingly international range of issues that advisers need to face. The tax implications of varying inheritance tax regimes in different countries also need to be taken into account. The combination of these diverse issues is causing me to question if the current UK-focused, IFA-dominated advice model is really fit for purpose for the next 25 years.

This may sound harsh but with the Zurich research suggesting that 84 per cent of adults do not currently have an adviser, it is hard to say if the current model is really serving the consumer. With the distance marketing directive and Mifid, we already have some pan-European financial services regulation, admittedly with some UK opt-outs to protect the sma-ller firms which make up so much of the market. Although a euro sceptic, I can see an argument a need for far closer harmonisation of taxation and social regimes.

If advisers want to continue to be the dominant distribution force for financial products over the next few decades, firms need to radically reconsider their operating models.

The FSA intends to review the operation of price comparison financial websites. I believe, however, this needs to become a core part of the retail distribution review. Rather than have a review that focuses substantially on one distribution model, let us look at how the long-term needs of the UK citizens both at home and abroad can be met for the next quarter of century. This inevitably needs a far greater understanding of the implications of new media and communications than has been carried out to date.

The emergence of Google’s UK finance portal alone should be enough to justify this. Without it, I suspect we will be going through the whole exercise again in little more than five years. Unless IFAs want to become OPFAs, they need to start addressing redesigning their approach for younger consumers before online financial portals replace the adviser role.

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