People – not robots – are the answer to Britain’s emerging retirement advice “vacuum”, as firms learn how to outsource their investment processes and delegate research to paraplanners.
That was the conclusion of panellists at Money Marketing’s recent roundtable on retirement advice.
Servicing less profitable, lower-net worth-clients is one of the biggest problems facing the industry in the post-RDR world and it has not been made any easier by recent pension reforms which have only increased demand for advice. While there has been much speculation about the role of robo-advice in the future of financial services, there is plenty of scope for adviser businesses to get ahead of the game by improving their people management.
Outmoded adviser business models are hindering firms’ potential to grow and to be able to offer a proposition for less wealthy clients, argued Standard Life head of adviser and wealth management propositions David Tiller.
“A lot of adviser businesses in this country are the size they are because of the span of control of the person who’s principal of that firm. We are in such a heavily regulated market that you have to be really concerned about what is going on for all of your clients. Therefore, if you are running a file-based, paper-based operation, your span of control is limited by how inefficient your systems are. Therefore, you will stay at a certain size because, at that size, you’re comfortable all of your clients are getting the service that you require.”
Tiller said it was “worrying” many firms’ business strategies seem to centre on acquiring more and more high-net-worth clients. “Actually, probably the greatest opportunity is to be able to provide advice services to people with less wealth. You need to streamline; you need to be more efficient.”
Unless the advice gap is filled, it risks undermining the progress made by the industry in becoming more professional, Tiller warned. “Post-RDR, the advice market is a very high quality market and actually RDR has been phenomenally successful. But I do worry if this profession actually chooses to go further and further upmarket, then, there will be a vacuum and it will be filled with poorer quality services.”
Advice firms could learn a lot from the world of bespoke tailoring, Tiller argued. “We all love to think we’re unique, but most people who go to Savile Row don’t actually get their suit built from scratch; they get their sleeves taken up with a nip and tuck at the back and it looks beautiful. Realistically, we could do more for more people if we really got into the efficiency thing.” Tiller continued: “Advice is much more about helping clients to understand themselves and their needs. The move towards paraplanners is absolutely the right thing. Often, they are far better at doing reports than advisers because that’s what they do every day.”
A number of other panellists also championed a greater role for paraplanning in helping advisers meet the needs of a wider range of clients. Million Plus financial planner Graeme McColgan said: “The paraplanner role seems to be growing and growing, but there are still lot of older advisers who don’t like to let go of that control. A good paraplanner is worth his weight in gold.”
McColgan referred to research from Defaqto which suggested 55 per cent of advisers spend more time on annual reviews for retired clients. For 30 per cent of advisers this is an extra two hours.
He said: “You’re trying to do this work which is an absolute nightmare and it takes you two extra hours… If we have got the right software and the right technology behind us, we can cut that work down. Providers are investing a lot of money into really good technology to help us do this kind of work in a more efficient way.”
Many adviser businesses were not correctly calculating the cost savings that greater use of paraplanning could bring, warned Defaqto wealth insight consultant Gill Cardy. She said: “A paraplanner is not a cost centre, but a profit centre. Back in the day, having admin staff was a cost issue because they were doing lots of paperwork and it was the salespeople who were the revenue generators for the firm. But in an advice business, or other professional firms like doctors, lawyers and accountants, everybody in that business is a profit centre in their own right. They can be engaged in things that are chargeable and generate a return on capital. And frankly, the profit margin on a paraplanner is much greater than it would be for the business owner, the adviser, who actually has quite a lot of time for things like CPD, going to events, making business plans or strategic choices. I had 20 hours chargeable week, my paraplanner had 40.”
Standard Life head of financial planning propositions Alistair Black said the industry still has a lot more work to do in educating consumers about the value of advice. Sometimes, the greatest value an adviser can add is in stopping the client from doing the wrong thing, he pointed out. “There is the inherent issue with consumers that when markets fall they sell out at the worst of the worst possible time. But if the adviser can spend time with people assisting in the emotional aspect of being in the market for the long term and having processes to set client expectations, to manage these and keep them on track, it will probably add miles more value than any other part of the process.”
At other times, advisers may have to turn away business that is unprofitable, but doing so in the right way may reap future referrals, according to Plutus Wealth Management chartered financial planner Sebastian Hurst. “I recently had a call from a client who worked in the City. He got great employee benefits, was paying down his mortgage and had two kids, so his money was pretty much tied up. I said ‘you don’t really need me. Whack some money in the pension, that way you can get relief in your marginal rate, I’ll work that out for you, it will not take too long.’”
Hurst said he then emailed the client back with some suggestions he clearly presented as guidance. “I said, ‘look, when this changes or when you need advice, come back to me’. He absolutely loved that because he is being harangued and harassed by a lot of advisers promising the earth. He’ll come back to me in three years and that’s great. And again, that’s building a good pipeline for me.”
McColgan said he had a similar approach to lower-value clients. “It’s about not trying to squeeze everything out of someone. If you can do that little thing [for them], the amount of referrals we get is what our business is based on, more than any sort of marketing. Most of our clients are referrals.”
Cardy added: “I’ve had referrals from people who I’ve turned away, but who respected that decision.”
However, McLean warned these situations are not always clear-cut and advisers had to be careful any guidance they gave did not cause confusion for clients. He said: “What about somebody who comes to Sebastian and says, ‘I want financial advice, you’re an adviser.’ and you say ‘I’m going to help you but I’m not giving you financial advice’?”
But Hurst clarified: “I say ‘from the best of my knowledge and based on all the facts that you’ve told me…’ I’m not setting anything up for them. There’s no contract there.”
Another vital issue for advisers to address is their own retirement, Cardy argued. She said a business without an adequate succession plan can end up with a client reaching retirement at the same point as their adviser and suddenly having to change their holdings because they do not fit with their new adviser’s strategy.
“Having that succession plan, it would be a positive marketing coup for firms to say… ‘as a firm, we have a succession plan in place for you and your family’. Anybody who minimises the impact of having to change advisers, even just administratively, let alone the stress of trying to find someone else you like or who understands you, it’s a nightmare and it’s costly. It’s not something you want to be doing at all and probably not when you’re in your late 70s or early 80s, you might just be losing a bit of capacity to understand all the things that are going on.”
McColgan highlighted a huge opportunity for advisers to communicate their value by helping to educate employees at the auto-enrolment stage. He said: “Last year we developed, alongside one of my colleagues in the accountancy business, an employee education programme. We talked about death in service and income protection and all the other things. The cost for the employer was not a great deal compared to what they actually saved. There’s a real gap in employee advice. So if we can get them there, I see that as a real way to open up advice to more people and just say, ‘here’s what we do.’”