The financial advice industry needs to shift its mindset in order to evolve, says Sam Tate, an adviser who has made it his business to build trust in the industry.
Through his financial planning firm New World Financial Group, Tate reaches out to younger investors and those who are at the early stages of accumulating wealth to educate them and lure them into the world of financial planning.
He says it is his responsibility as a finance professional to help more people, especially those that have not traditionally benefited from financial advice.
Besides, failing to adapt to the new world of financial clients could spell bad news for traditional firms, he adds.
Tate says: "In our opinion, as someone who believes that financial education within the country is weak/non-existent, we're the financial professionals and we've got a responsibility to educate people, and not just the people that can afford, in a traditional sense, to pay for our services.
"So we decided to reimagine what our product is essentially, and therefore how we would get paid for that and how we would target clients."
New World was set up in 2019 and launched to market in 2021. It currently has two advisers, a small paraplanning team and outsources most of its other business.
We shouldn't just be an intermediary between an investment house and a client, it's belittling to us and what we can offer.In its first two years of existence it has build up a client base of 150 from scratch, representing a mix of young people and more established higher rate tax payers.
The firm runs a subscription-based model alongside a fee-based model, saying the former appealed particularly to young professionals "who are earning good money and need direction in terms of their decision-making [such as] where to point their money, but also what decisions might be prioritised over others."
Within the subscription-based model it has three tiers, starting at £50 a month for a 12-month contract for just the financial plan and guidance around asset allocation, but no implementation.
At a cost of £100 a month clients get financial planning and investment management, while the premium service at £150 a month offers additional tax planning and other services geared towards higher rate tax payers.
Although financial planning without product advice technically is not regulated at the moment, the firm still treats it as such, in part to appease professional indemnity insurers whose questionnaires, Tate says, are "outdated" in this respect.
New World also runs a financial health check, which it targets at businesses and their employees and it offers information and education for free online.
Different needs
Tate says he believes young people are not receptive to traditional advice with a strong focus on implementing investments because they can easily access the investments and platforms themselves online.
"I think that the financial advice industry needs to shift the mindset in order to evolve," he adds. "And that's something that we're trying to obviously lead on.
"So many people within our industry are talking about things like how can we charge more, how can we earn more money off the people that are our clients, and there is no thought about the fact that there's millions of people over here that they could receive some money from.
"And actually the financial planning, the cash flow forecasting, has so much value in that.
"We shouldn't just be an intermediary between an investment house and a client, it's belittling to us and what we can offer."
Cash flow planning is a must at New World, it's at the heart of what the firm does. "We won't give investment advice without doing financial planning because we don't feel as though we know enough [about the client] to be able to do that," says Tate.
Besides, he sees the decoupling of his fees from his clients' investment value as a safety blanket for when markets go down.
Operating at the lower end of the market carries a good amount of risk too, however. Many robo-advisers that launched in the past decade have already shut up shop because they could not generate sufficient income.
Setting up was challenging, Tate admits, and one that might be harder for established firms. "I appreciate we're a young firm so we can be nimble."
Among other things, the firm had to invest in technology to be able to roll its services out to more people. But Tate says the trade-off will pay off.
He says: "There's a faster way of making more money, and that is to do what traditional IFAs do. However, I believe that there's a lifespan [for the traditional model] and we're not far off the end of that lifespan."
Tate says the old model might not be relevant to the next generations that are coming through, who are tech savvy and willing to invest themselves.
But, he notes, change will be slow and it will be hard for larger firms to turn their models around and potentially accept a cut in income.
His plan to boost income involves reducing the time it takes to create a financial plan to 10 hours and then to five hours – currently it takes 15 to 20 hours.
This will be done with the help of automation and artificial intelligence in the information gathering process, and by ensuring all processes are as slick as they can be, from the firm's website to its back office, and its welcome letters.
"We're making money, but we're not after shortcuts. And we want to invest in technology to have a scalable business that lasts and don't fear short-term financials over long-term success," says Tate.
Building trust
Other firms are also in the process of targeting the less wealthy through technology-led robo-advice services. Embark, for instance, plans a robo launch this year through the Lloyds banking network.
Tate says he is not against such developments, but adds: "Ultimately what they're selling is their own products. So I'm a believer that independent advice is preferred, because clients can be assured that they're getting the best things for them.
"Bank advice is probably better than nothing, but it's not going to break down any advice gap at all."
He also does not think these services will help to raise trust in the advice profession.
"I see trust as a major issue in our industry. We don't like to talk about it because we're in this little bubble of the 8 per cent – well they trust us while the 92 per cent don't, and that's a big problem in my opinion," Tate says.
He notes the first step towards earning trust is to offer a service where people do not pay more for certain advice and are not surprised by hidden charges.
But Tate acknowledges building trust takes time. "One of the biggest challenges is the message that we've got and how we get that out.
"I'm starting to get that out within the industry but again, trust takes time to build. So telling people and changing people's mindsets on what they might expect from a financial adviser versus what we offer, you know, it's not something that happens overnight."
carmen.reichman@ft.com
