In recent weeks, an increasing number of people have been asking me what the financial advice company of the future will look like and the more I examine this issue, the more I come to the conclusion that it will be radically different to the businesses that have dominated financial product distribution for the last 40 years.
During this time, face-to-face relationships have been the key to selling financial services. The baby boomer generation has changed virtually every part of society it has touched as it has passed through its different ages. Now, as it begins to retire, is the way in which this generation has planned for its retirement also about to be pensioned off?
It can be argued that baby boomers, and I say this as one, are a selfish and fortunate generation. We have lived through unparalleled prosperity, enjoyed grants to attend university, bought property cheaply, enjoyed generous and unsustainable workplace pensions, consumed the Earth’s natural resources with scant regard for the future and devoured, some would say squandered, the financial wealth accumulated over the two centuries since the industrial revolution.
The sale of nationalised industries, utilities and infrastructure, combined with the demutualisation of building societies and mutual life offices and now the distribution of inherited estates, has amounted to selling every last bit of the family silver on a live now and someone else can pay later basis – most are now making plans to spend what their own parents would have wanted to pass on to them as an inheritance.
A new generation of financial consumers is emerging and for them the landscape is very different. They are coming out of education with debts of tens of thousands of pounds and will need big deposits even to think of buying a home. They also recognise that any pension provision they can save is going to have to come from their own resources.
It is perhaps worth recognising that many emerging consumers will not be faced with some of the more complex decisions their parents have had to address, for example, how many will have to worry about transferring benefits out of defined-benefit schemes?
Their capacity to save is likely to be constricted by the debt they are carrying, so it may be far later in their financial life before they can afford to make regular savings. Starting saving later, combined with increased longevity, will mean it will be a challenge to make their assets meet their financial needs for the remainder of their lives, let alone leave anything as a bequest, so will they really need inheritance tax planning?
Financial advice as we know it is a complex process but who does that best serve – consumers or perhaps the community that makes its living from providing the advice? Conveniently, this complexity enables the argument that advice is essential. How about making advice simple instead? Isn’t it time for our industry to recognise that we need to offer consumers simple solutions that provide good value for money rather than complex ones which support the need for advice?
At the root of many of these problems is, I believe, the process we know as “best advice”, that nirvana of the best possible solution for consumers. Except is it not all smoke and mirrors? How many customers, examining their portfolio when their investments mature will actually find that the contract they have invested in has outperformed all others?
New financial consumers need simple solutions that meet their needs at a price they can afford. If the RDR means traditional advice becomes too expensive, then we need to find new ways to deliver it.
Interestingly, the FSA has stated so far they do not feel the industry has made the case for a simplified form of advice. Perhaps we have been too focused on perpetuating our broken, self-serving model, to recognise the needs of the next generation of consumers?
A further part of the problem is that this industry has a fascination with itself that everyone else simply does not share. Much of the general public see financial products as a necessary evil. If we really want to engage with consumers, we need to make things easy for them to understand.
The IFA community seems, for the most part, reluctant to deliver solutions to meet the needs of younger customers but a great deal is being done in the workplace marketing arena to address this opportunity.
I have seen an increasing number of solutions designed to deliver knowledge and understanding to employees as part of their group benefits. Many of these are not in the public domain yet but one exception is the My Money and Me solution recently outlined by Friends Provident.
Announcing the service recently, Friends chief executive Trevor Matthews painted a picture of a vastly different proposition compared with traditional group pension services. One that will deliver group Sipp capabilities to offer wider investment choice and flexibility, access to stocks and shares, Isas and the ability to transfer proceeds into the group Sipp for tax uplift, SAYE/share incentive plan options, a general investment account as well as a range of financial planning tools and a consolidated view of investment.
In addition, the service will offer a wide range of financial education extending beyond just pensions, from debt management to investment decis-ions and incorporating behav-ioural finance techniques.
If advisers cannot build these services themselves, they need to rapidly embrace those being developed by those who are building them. The financial services business of the future is more likely to be substantially staffed by people building systems to provide support and guidance to their clients remotely at a cost they can afford.