TechnologyAug 20 2020

Do you need to change your advice model?

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There’s no shortage of views on the current state of the financial advice market and its future. But most of them contradict what I am seeing as the managing partner of a national advice firm.

One such prediction that has been brutally exposed is that the robos would take over the advice market. Just to be clear, all the evidence points to the fact that robo advice has not made any material impact on closing the advice gap.

The altar to the gods of progress are littered with the corpses of pure robo advice firms.

The age-old issue of client acquisition has proved elusive to robos despite huge promotional cost. There is a distinction however, and it’s that the role of technology is on the rise but as an enabler not as an adviser’s replacement.

Time moves on against the background drumbeat of a widening advice gap that shows no sign of abating with the prospect of up to 15,000 advisers retiring over the next five to 10 years, according to several recent studies.

Life on lockdown has brought with it myriad difficulties, including two very practical ones for advisers. How do you find new clients and service existing ones if you can’t see them? If your firm is in the digital world, where clients certainly reside, then you’re thriving.

Those firms whose operations are still largely paper-based are barely surviving, as the daily headlines of unanswered emails, closed offices and furloughed employees have exposed.

The unshakeable truth remains that clients need advice, advisers do the expert work and technology is increasingly taking the administrative strain. All of which leaves more time for advisers to find new clients then provide a service to meet their needs. 

With the reducing number of advisers then the productivity of each has to increase to close the advice gap.

Both are crucial factors in narrowing an advice gap that is itself fraught with costs and risks associated with being a financial adviser, particularly those directly authorised firms. 

From PII and FSCS levy costs to any previous Defined Benefit pension transfer advice, the obstacles are real and are the intended or otherwise consequences of the Retail Distribution Review. This forced advisers to segment their client banks and furlough ‘non profitable’ clients, with small comfort of hopefully turning off ongoing fees in the process.

This cannot continue if we are to achieve former FCA chief Andrew Bailey’s intention to close the savings gap. The solution isn’t to spin the numbers once the magical disappearance of the FCA Register is reversed and say adviser numbers are increasing, but to look at the efficiencies of our advice landscape and for the regulator to drive and support change.

This should then provoke honest discussion about what an advice firm of the future, a future which has already begun, looks like.

The intangible nature of financial products means they still need to be sold to customers, acknowledging human interaction and referrals play a huge part in a thriving client acquisition programme.

We clearly need advisers still to be involved in the delivery of advice at this time and anyone trying to build a business without this ingredient needs to have deep pockets and very trusting shareholders.

We should not give up on attracting new bright young things to our industry. Their training needs to include prospecting as well as selling and an understanding of how to work the client banks they may take on over time.

Once we move on from Covid-19, we will see a change in how people consume, work, interact and travel. These are not new phenomena, they have in the main just had an adrenaline rush from the necessity of the current situation. In times of war research and development always accelerates.

Successful advice firms were seeing these trends and have been adapting for several years. Now advice will have to be delivered at a time and in a manner and format that suits clients. 

And this matters more in a post Covid-19 virtual world. From video calls and secure messages to client-led annual suitability reviews and online transfers, the new normal will be a digital one.

Swimming without shorts

The most fundamental parts of building a successful business of scale for the future start with being able to prospect and attract new clients and then being able to onboard them into your proposition. Covid-19 has been the event that will be proven to show who is wearing shorts at low tide.

Technology running alongside human actions will have been imperative to business during this time of isolation and will have shown which companies have been able to grow and keep customers informed and investing.

Having the ability to get accurate valuations is essential but to be able to transact, top up, talk to advisers or host company with all the data that is required to support this from a mobile device is a differentiating factor few will be able to offer.

As an adviser, having all your client records and data on a mobile device if required also proves invaluable to our team.

Regular communication with clients is imperative and strangely this often suffers during times of market stress which is counter- productive to keeping clients happy and informed.

Having data available to be able to keep a reliable dialogue with clients helps referrals and prospecting and keeps an audit trail to support your service proposition, another huge benefit.

The ability to onboard new clients and assets in moments is also a breath of fresh air that reliable trusted technology brings.

This new hybrid advice model allows clients to access advice when they need it, view their investments 24/7, top up investments, communicate with advisers and discuss their financial position with dependants effortlessly at a time to suit them.

Technology makes the delivery of financial advice efficient, compliant and effective for both the client and adviser. To use the parlance of consultant speech this is all about raising the quality of advice and client experience whilst driving down the unit cost of advice.

Technology is fundamental on the complex journey to make all clients ‘profitable’ and confront the challenge of inter-generational wealth transfer, thus allowing firms to grow their scale and profitability.

A high-quality firm offering the best client outcomes at an affordable price that makes a profit will be dependent on three key components:

  • Competent advice
  • Seamless, reliable, integrated technology
  • Understandable, diversified investment proposition

The benefits are endless. From speeding up your time to market and managing your finances, to assisting in the development and running of sophisticated investment vehicles making them understandable to clients.

Expert advice and expert technology combined can reduce client fees whilst increasing firm profitability and value.

The RDR drove the profile of adviser income away from front loaded commissions to ongoing advice fees which has exacerbated the decline in new entrants to the market.

The Mifid 2 requirement for annual suitability reviews to be carried out and evidenced has now put these fees front of mind, causing considerable angst and expense for certain firms.

The use of a seamless integrated technology platform can make these reviews not only compliant and less onerous but actually bring about a discussion that reinvigorates the adviser/client relationship.

I haven’t yet mentioned confidence, which obviously has to exist in each of the three components of a successful firm. Leaving aside the investment proposition and human advice components, brings us to confidence in technology platforms, which has been the subject of much debate recently.

With the reducing number of advisers then the productivity of each has to increase to close the advice gap. The only way for this to happen is for advisers to embrace reliable technology.

Having a platform that is seamless, without endless bolt-ons and patches and that works starting from our client view on their app, up to the views I use to run a firm of 570+ advisers, has given me the confidence I mention.

This year’s profit is next year’s practice buy out value and the only way to increase profit is to have clients who are happy with the value you offer across advice and service, reduce the unit costs of providing this and increasing the volume of new business.

If you are failing in any of these areas then your long-term goals and more importantly those of your clients will not be met.

It’s that honest discussion again but this time with yourself. If you are having to spin your answers then it’s probably time to rethink your partners and model.

Steve Hutton is managing partner at True Potential Wealth Management