Long ReadApr 5 2022

The future of financial advice is not in product-based solutions

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The future of financial advice is not in product-based solutions
Credit: Unsplash

The UK financial services industry has a deep culture of product-based solutions that supposedly act as convenient tools to help people manage their personal finances and, most notably, their pension savings.

Indeed, the director of policy and advocacy at the Pension and Lifetime Savings Association, recently told the Work and Pensions Committee that a combined product for anyone reaching retirement age could replace needing to provide advice.

The combined product would be a mixture of cash, investments, and guaranteed income, capable of creating a retirement strategy, therefore foregoing the need to seek advice on how to approach your pension.

Attempts to try and simplify retirement planning are commendable. Retirement is a significant period of change for people as they find themselves with a lot more free time and have to seek the best financial choices with their pension saving in order to maximise their financial wellbeing.

However, a combined product is unquestionably not the way to achieve this. 

A fundamental part of devising a retirement strategy is factoring in a person’s individual circumstances, which combined products fail to do. This is because they utilise a self-navigation system of robo-advice that attempts to figure out what an individual wants to achieve with minimal human intervention, usually establishing a retirement plan based on short-term goals. This is a problem as what most people need is a long-term retirement strategy.

Further, combined products lack transparency. This can cloud public understanding of what the product can achieve, and the impacts of factors such as longevity being unknown to the majority of the population. This could add even further complexities to what is already a complicated process. 

We have encountered these ideas before, and the general consensus is that there is no substitute for independent advice. However, uptake is still limited among Britons. 

> A fundamental part of devising a retirement strategy is factoring in a person’s individual circumstances

Accordingly, the financial services industry must accept that changes are required to accomplish a more accessible industry where advice is readily available to all, not just the wealthy few. 

Since the onset of the pandemic two years ago there has been significant progression, suggesting that independent financial advisers are willing and able to accept the need for such change. 

A transition to virtual services

The financial services industry, like most sectors, was forced to adapt quickly when the pandemic first hit two years ago. Lockdowns and social distancing rules saw all adviser-client interactions carried out virtually for this period. 

Research from Abdrn from the end of 2021 found that nearly a third (31 per cent) of people that had received financial advice had used remote advice channels for the first time since the UK first entered lockdown in 2020.

Pre-pandemic, in-person meetings between adviser and clients were the norm, with this sort of interaction perceived as integral to building relationships and making important decisions throughout the development of a retirement strategy.

However, advisers have since changed their approach to interactions, with consultations with clients being carried out over telephone and video calls replacing the need for in-person meetings. 

> There is no substitute for independent advice. However, uptake is still limited among Britons

Naturally, as many sectors have found, this adoption of newer tech practices has proven incredibly beneficial for the industry. Certainly, the change in working practices has been positive for both advisers and consumers as access to financial advice becomes more readily available to retirement planners.

To a large extent, remote practices of delivering advice has ensured a more efficient and streamlined approach to the financial advisory process, while improving wider national accessibility.

An individual could now have a meeting with an adviser on the opposite end of the country without needing to consider time and effort required to travel to a face-to-face meeting.

And, with the process now simplified, those who are put off by lengthy financial planning procedures may be more inclined to seek advice. 

Client attitudes toward the switch have been favourable. According to Unbiased, one survey found that 73 per cent were happy to receive financial advice remotely, and of these, 34 per cent favoured a blended approach, consisting mainly of remote advice with an element of face-to-face where this was called for. 

Future improvements in tech 

Aside from increased efficiency, advances in tech-based solutions coupled with independent financial advice have the capability of boosting client engagement in their savings and investments. 

Indeed, one obstacle for advisers is getting people to attend regular reviews to discuss their retirement plan, which for those who do not plan to retire for some time, may feel unnecessary.

In these cases, a lighter tech-based approach utilising online apps, booking systems and instant chat services would actively encourage engagement from savers across all age ranges. 

The significant advantage of such platforms is the ease of accessibility.

> Product-based solutions will bring nothing but inauspicious results considering their lack of tailored advice

Advisers can maintain simple communication through email to provide updates to confirm if clients are on track to meet their retirement goal or provide information on topics of interest such as investment opportunities.

Not only does this mean better access to savings, but it ensures a close relationship between clients and advisers. 

Additionally, as this hybrid of tech-based solutions and independent financial advice progresses and becomes more commonplace in the industry, it will lower the cost of advice and make it more accessible to the masses. 

Efforts from the government to make pensions more accessible for savers are, of course, welcome.

After all, everyone should be entitled to developing a strong retirement strategy that suits their needs and any move to facilitate this is admirable.

That said, product-based solutions will bring nothing but inauspicious results considering their lack of tailored advice.

Only a combination of independent financial advice and evolving tech-based solutions can ensure accessibility and guide people towards the retirement outcomes they deserve. 

Andrew Megson is executive chairman of My Pension Expert