Fifty-three per cent of investors are neither advised nor self-directed. They are both. With this in mind, why do we as an industry, first, think of investors as one or the other and, second, see the two channels as in competition with each other?
Investors do not see themselves as “direct” or “advised”, so perhaps we should think more like them. Let’s take a hypothetical example.
John begins working at 25 and barely has enough cash to pay rent. Years go by and eventually he starts putting some money aside every month but spends the rest on beer. He clearly does not have enough money for an adviser to want to see him. As a “millennial”, he thinks he can do it himself anyway, with a little bit of help from somewhere.
He opens an Isa on a platform. He wants a truly online service: he does not want to sign papers or use the post and he wants it to be easy to keep an eye on what is going on. He is a classic “five-screen” client, who will use his phone, tablet, computer, television and smart watch. He will research on his phone and tablet but execute on his computer. The more integrated a provider can be to these five screens, the more engaged a customer like John will be. Through various guidance tools John finds a ready-made portfolio to match his risk level, and decides to invest.
John gets married and soon has his own family. He can now afford to put more money aside. As he ages, the prospect of retiring scares him. How he wishes he had read those pension leaflets he thought were just gibberish advertising. In his scared and worried state he finds he has numerous defined contribution pensions lying around in different schemes from different jobs.
John now has sufficient assets to be interesting to an adviser and his investments are so scattered that he feels he needs some professional help. He appoints an adviser recommended by his neighbour. The adviser will see him into retirement and will manage the decumulation process.
When in due course John dies, the adviser manages passing the wealth down to his offspring, who by now are (hopefully) starting to worry about retirement themselves. The cycle begins again.
The industry is catching on to this trend and developing advised/guidance propositions to cater for the light-touch, earlier-stage investor. Direct platform Hargreaves Lansdown now has a full advised service plus some additional lower-cost advice and guidance solutions.
Many wealth managers are looking at how they service the DIY clients who want a little bit of help: we already have Nutmeg, and Investec Wealth is due to launch a proposition this year. There are also online advice services such as Money on Toast that engage with customers who want a “cheaper” advice solution (or those who do not actually want to talk to anyone; almost anyone born after 1980
We can also look to the US for some successful hybrid models. Vanguard’s Personal Adviser Services gives advice by making the investor go through the initial stages of fact-finding and goal-setting online and then supplementing this with a real-life financial adviser on the phone to complete the process. This caters for the digital consumer but gives the personal feel of having someone validate decisions.
Advisers and providers in the UK need to think about how they service those clients who want a helping hand but cannot afford, will not pay for or do not require a fully advised service. We must never forget that the digital millennials will be the ones inheriting from today’s clients, so engaging with the younger crowd today is not just important but absolutely necessary. That means more five-screen and less wet signature thinking.
Rohit Vaswani is head of adviser distribution relationships at Platforum