Advising the next generation

With technological advances and modifications in social values and behaviour, client‎ needs, requirements and expectations are also changing rapidly, according to KPMG partner Ian Smith, who adds that propositions and service models will need to be reshaped to remain relevant to the new generation.

He said: “It is no longer just about attracting the clients who are armed with cash and ready to invest. The successful advisers of tomorrow must focus on building cradle-to-grave relationships with a dramatically different and more diverse client base from today.

“With demographic shifts, this will include younger, more diverse and mobile generations of investors with heightened expectations and demands.

“Advisers must also be mindful that women are increasingly controlling a bigger share of family wealth.”

The lifestyles of baby boomers – typically defined as those born between 1946 and 1964 – have been influenced by a host of opportunities, such as free university and final salary pension schemes. The same opportunities are not necessarily available to the post-baby boomer generation, according to Robin Keyte, director at Somerset-based Keyte Chartered Financial Planners.

Mr Keyte said: “Although the baby boomer generation has gone through difficult times such as inflation during the 1980s, they have benefited from things such as increases in property value, and will have well-funded retirements, partly because of generous final salary schemes which were popular at that time.

“Looking back at what their parents had, people in their 30s and 40s will feel worse off.”

Attitudes towards retirement have also changed from generation to generation. Matthew Harris, director at Dalbeath Financial Planning, based in Fife, said that when it comes to the new pension freedoms, many of his baby boomer clients are attracted to income drawdown but do not want to take significant risk with the assets they have in drawdown.

He added that the new generation of clients will opt for products that will deliver a lower risk investment experience, but still allow their money to grow faster than inflation.

In response to this, financial advisers are creating investment portfolios for pension and investment clients that keep charges low, and provide a balanced portfolio of equities, bonds, property and cash.

Mr Harris said: “Advisers must cater for the next generation of clients. These clients see the value in having their pensions and investment portfolios managed for them across their working life and during the bulk of their retirement. They rarely intend to buy a lifetime annuity, so require a new type of investment proposition to suit their retirement needs. Failing to develop such an offering will inevitably lead to a fall in client numbers for any adviser.”

Another factor to consider is the erosion over the past 50 years of the stigma attached to debt, as Matthew Allen, director at Middlesex-based Mulberry Chartered, noted.

Mr Keyte agreed, adding that an older generation’s saving habit created during post-war rationing has been replaced by a more consumer-centric approach: “There has been a shift in British culture from saving to living the luxury lifestyle akin to celebrities and buying branded goods.”

Certainly technology has opened the door to financial options which had not previously existed, and it will continue to play a critical role in the industry’s future. Notably, the internet – the single most important recent technological development in global society – has completely transformed the way information is collected, sourced, distributed and received since being launched for public use in the early 1990s.

From tablets to smartphones, there has been a boom in the innovation and development of sophisticated devices granting access to the worldwide web on the move. The internet has allowed an increasing number of people to opt for the do-it-yourself investing route through platforms, building their own bespoke portfolios using the wealth of research at their fingertips.

There are also a number of platforms designed specifically for financial advisers to manage their clients’ investment portfolios.

The clients of the future will demand more personalised information, education, guidance and advice delivered seamlessly through a variety of traditional and technology-enabled channels, according to KPMG’s Mr Smith.

Mr Smith said: “Advisers will need to radically address their technology capabilities to really understand their clients and support this level of service. With prices and margins under pressure, they will also need to drive further efficiency and safety into the operating model. Technology will play a key role.”

Facebook, Twitter and LinkedIn are just the better-known of a number of social media sites which have cropped up in recent years, to be embraced by financial advisers based in the US.

A 2014 survey conducted by Putnam Investments found that 75 per cent of the more than 700 financial advisers in the other side of the Atlantic it surveyed are using social media for business.

Two third of the respondents said they gained new clients using social media – up by 17 percentage points from the previous year’s total.

In contrast, just under half of the 225 UK-based financial advisers who took part in a study by the Association of Professional Financial Advisers use social media in a professional capacity, while only one in five said social media was important for their business.

These findings came as no surprise to Mark Andrews, certified financial planner at Greater Manchester-based Redswan Wealth, who said: “I think financial advisers question the effect of social media and how much information is lost in the ether. There is a lot of noise being made on these sites so it is easy for the message an adviser puts out to get lost.”

However, the FCA recognises the importance of social media, recently having launched guidance designed to assist firms in their use of social media, and ensure that they are compliant with the watchdog’s financial promotion requirements.

Commenting on the launch of the guidance, FCA director of supervision and authorisations Tracey McDermott said: “Social media is already an important tool for industry to engage with customers and its use is only likely to grow.

“Financial promotions, whether on social media or traditional media, must give customers the right information, and meet our requirements to be fair, clear and not misleading.”

Nevertheless, Mulberry’s Mr Allen was mindful that advisers must retain the human touch: “Having a good social media presence is increasingly important, but personal relationships will always come first.”

The exact nature of the role that greater use of technology and social media presence will play in the industry’s interaction with the post-baby boomer generation remains to be seen. But there is little doubt that financial advisers should adapt their services to remain relevant to their future client base.

Myron Jobson is a features writer of Financial Adviser

Key points

The advisory industry must attract the custom of a younger generation.

When it comes to the new pension freedoms, many baby boomer clients are attracted to income drawdown.

The importance of social media is recognised by the FCA.