'Firms must adopt hybrid advice if they want to attract the next generation'

Some findings were predictable but others a bit of a surprise, in some instances telling a different story from other research I have seen.

A mixed picture for advice seekers

I was struck by the apparent fact that a large number of individuals have not sought financial advice in the past five years. Averaging across all age groups and genders, a little over a third (36 per cent) of those surveyed who had savings, investments or a mortgage had looked for help with their finances in that timeframe.

I found this surprising, given the market volatility, increasing inflation and interest rates.

Interestingly, the largest cohort (54 per cent) were aged 25-34, and the FSCS queries this outlier as possibly being explainable by younger people being confused about the definition of advice, taking more unregulated advice and guidance that wouldn’t be protected by the FSCS.

It’s no shock to learn that advice offerings are currently considered by a large swath of the public to be uneconomical.

Delving into where the young are finding recommendations on where to put their money – turning to social media, online influencers, a guy down the pub, ie 'people like me' – is for another day.

As my colleague Andrew Storey pointed out when we discussed the FSCS research, it’s unexpected to see that having previously paid for regulated advice, only 62 per cent would use the same advice service again for a similar purpose. This is at odds with other surveys and suggests some increased dissatisfaction among the advised.

Whether this is cost-related or for other reasons is unclear right now.

OpenMoney’s report in 2021 suggested more than 9 in 10 individuals found it helpful, so it's surprising only 62 per cent would use the same advice service again.

Price models could succumb to demographics

Of more immediate concern to advice firms is the continuing view from many that the current avenues for individuals to access regulated advice are too expensive (22 per cent), or they believe they haven’t got enough assets to interest an adviser (23 per cent), or they are not confident the adviser can offer value for money (14 per cent).

While it’s no shock to learn that advice offerings are currently considered by a large swath of the public to be uneconomical, it does pose questions about the long-term sustainability of many traditional advice businesses.

The best solution to my mind is one combining guidance, digital advice, and human advice.

When the next generation of potential clients replaces those currently nearing or in retirement, and lack the advantages of significant housing wealth or big defined benefit pension pots, firms keeping to the existing price paradigm may struggle to onboard enough clients.

If I may be direct here, millennials and generation Z are advisers’ future sources of income, so it’s vital to get them into the firm’s ecosystem before long.

The important question for those of us in or supporting the advice sector is, as this likely future unfolds, how can we assist the large group of individuals who need regulated advice for their financial wellbeing but are currently excluded?

Opening doors for the excluded majority

I venture to suggest two potential routes to opening up professional advice to a wider market of deserving people:

• Reduce the price point by adopting hybrid advice, blending automation with human interaction – this could be up to 50 per cent less costly to provide versus most of the current traditional advice services.
• Cut the price substantially via streamlined advice delivered fully digitally – a purely digital journey, where algorithms provide a recommendation and the suitability report is automated, is up to 90 per cent cheaper than traditionally provided advice.

While a segment of advice firms will doubtless resist changing their model ('if it isn’t broke don’t fix it'), I do believe it’s important for firms to at least consider the use of hybrid and digital to reduce the cost of giving advice.

The benefits of doing so include increasing the firm’s market share, future-proofing the value of the advice business (re millennial and Gen Z fee payers), retaining a profitable performance and, not to be overlooked, widening access to dependable regulated advice that gives more people the chance to enjoy a prosperous later life.

The best solution to my mind is one combining guidance, digital advice, and human advice. Different firms will need a different mix, depending on their target client segment, but all firms can benefit from better use of technology.

As enabling technology continues to develop at a rapid pace and is progressively adopted, traditional-only advice could have a limited shelf life.

Chet Velani is managing director of EV, a provider of integrated financial adviser and guidance technology solutions