As evidenced by the demographic averages for length of service, income and practice valuation, regulated financial advisers were in good shape immediately prior to the arrival of Covid-19.
A very high price had been paid to achieve this position. Over several decades the UK adviser population was subjected to its own version of natural selection. Only the ‘fittest’ survived (fittest in the Darwinian sense of adapting well to environmental change).
For the short and the medium terms, the advisory sector is in for a tough timeThe principal environmental changes had been due to regulation and associated developments, namely: the requirement for professional standards; interventions on remuneration; the shift towards restricted status; and the trend towards aggregation.
The survivors might reasonably claim: ‘What didn’t kill us made us stronger.’ Without doubt they proved they possessed resilience (in all senses).
So, can we now assume that this invaluable attribute will be enough to help advisers emerge from the pandemic even stronger still?
Hard times
There is no need here to list the scale and nature of damage currently being done to the British economy and to all of financial services. Being realistic, for the short and the medium terms, the advisory sector is in for a tough time.
Realism is not the same as negativity. It involves considering pluses as well as minuses. And there are several pluses.
The mass affluent will now be keener than ever to put their finances in order. They will want to recover what they see themselves as having ‘lost’ and they will want to be better protected.
Key points
- Advisers had to adapt quickly before Covid-19 struck
- They can use imaginative ways to take their business forward, and survive, using technology
- Resilience is important at this time
In scale and in intensity, therefore, we can reasonably expect increased demand for the services offered by regulated financial advisers.
However, for a variety of reasons (and perversely in such market conditions), adviser earnings are likely to come under increased scrutiny.
If that happens, it is probable that generating strong profitability (and capital value) will require advisers to do more than just rely on their ability to stick at it. Qualitative changes will be required.
Over the past couple of months I have discussed this at length with experienced owners, directors and managers of advisory firms, as well as with individual advisers. There was widespread agreement about the following:
• Client communications
Most advisers are excellent at face-to-face communication. However, they are not so good at systematically and productively communicating with their entire client bank.
Most advisers will apply some form of segmentation to their client banks but far fewer appear to use it to promote two-way communication, to do targeted messaging and to take a step up from simply prospecting towards marketing.
As one of the team who introduced practice buyout on a mass scale in the UK, the value of segmenting a client bank has always seemed undeniable. Advisers who do not use segmentation are almost certainly missing out in one way or another.
• Onboarding
Advisers often justify the average number of face-to-face meetings (typically three for a significant case, spread over several weeks) taken to onboard a new client on the grounds it helps build rapport.
No one would deny the immense value of rapport, but its development is not purely a function of time spent meeting in person.
Robos have proven that data-gathering can be done satisfactorily and compliantly without any client meetings. Undoubtedly face-to-face meetings are of great value to both advised and adviser, but cost/benefit remains a consideration.
The lockdown has greatly increased the use of Zoom and other remote offerings. It has been reported that GPs have been impressed by the efficacy of online diagnosis.
Albeit as a back-up, meeting remotely will probably now become a permanent feature of diagnosis in many different fields.
Moreover, with every passing year, in all professions there are likely to be increases in the proportion of data collected from sources other than the client.
Obviously, this should only be done through means approved by the client in advance, and in ways that are non-intrusive and appropriate.
This trend, accelerated by open banking, will improve the efficiency, accuracy and completeness of data collection. In regulated financial services it will have positive consequences for compliance and for adviser protection.
• Suitability
Having more comprehensive and accurate data will be of particular help in developing and evidencing the suitability of recommendations. Better quality of data, allied with relatively simple artificial intelligence, will give the adviser a clear, evidenced steer on suitability. Advisers will have the freedom to amend this steer where they have good reason, but the intervention will be on record.
The automatic record-keeping of the considerations taken into account in producing suitable recommendations will provide greater safety for all concerned. It should also reduce the time taken for business checking, so delivering greater safety at reduced cost. Audits of all kinds will become much easier to carry out and of even greater value to all concerned.
• Sustained suitability
Sustained suitability should be what every adviser aims to provide. In the future, performance of a recommended portfolio will be monitored and amended throughout. The days of heavy reliance on just one major review a year will soon be behind us.
Modern technology now makes it possible for investment performance to be monitored at all times and continually checked against the strategy agreed with the client.
‘Nudges’ will be automatically given to the adviser about any and all factors that might usefully be drawn to the client’s attention.
This functionality will increase the amount of contact between client and adviser.
It will also allow advisers to be much more proactive than has been possible up until now. This may well turn out to be the most fundamental change in advice resulting from the pandemic.
For the above and other improvements to be made, the problem of ‘disconnection’ has to be resolved. This problem was examined in detail in two excellent Origo research reports (one in 2018 with Platforum, and the other in 2019 with the Lang Cat). The typical company was found to use seven different, standalone systems to complete the advice process; this creates an undue degree of both administration and risk.
Integration
Moreover, the integration of the whole advice process will obviously be of great benefit to the adviser population.
It will help raise productivity and income at a time when margins will be under increased scrutiny – and especially so if it also enables the integration of bolt-on tools for more specialised, added value services. Perhaps, most importantly, it will provide greater protection for both advised and adviser.
Resilience, plus a willingness to make the sort of improvements described above, will enable advisers to deliver even better service, to even more clients, and to benefit accordingly.
Keith Carby has held leadership roles in several financial adviser businesses including Allied Dunbar, J. Rothschild Assurance (now St James’s Place) and Openwork
