The changing way people want advice

I was reading a Deloitte paper called 10 Disruptive trends in wealth management . It was obviously written for the more traditional advisor and the ways that they would have to change their practices if they wanted to stay in business. It really was a paper on how people want financial advice. I will not go through all 10 points in this blog (you can read them in the link above) but I will touch on what I think are very important issues that the paper brings up.

The re-wired investor

These are Gen X and Gen Y investors as well the the baby-boomers who are influenced by their younger peers. This investor wants to engage with their advisor, they want to be treated as individuals and have their advice tailored to their specific goals.

They take more interest in their investment decisions and want to take more control over them. They also, quite rightly, look to more than one place for advice and are not afraid to talk to their peers for their opinion and will carry out their own research too.

We are in a world where we expect online access to everything and this extends to investment portfolios. The re-wired investor expects to be able to access their account online. This is an area where Irish insurance companies fall down, with very limited access offered to clients and some companies not even offering online access at all!!

They also expect the same level of investment access than the High Net Worth and institutional investors. With the introduction of platforms providers in Ireland, such as Conexim , clients now have this level of access.

Science v Human-based advice

In the US, Robo-advisors have started taking market share from more traditional advisors. Online investment advice based on algorithms and science is taking the place of having an advisor come up with a strategy for you. I spoke to an advisor last week who moved all his clients out of equities and into property. In these cases, it is no harm to have a more scientific based investment approach!

Holistic, goals-based advice

In the past, financial advisors based their service on them telling you that they would be able to get your higher returns than the next guy. This was never true. We have seen a massive boom in passive investment strategies and ETFs, along with lots of research that has shown that tracking the market and buy and hold strategies works best in the long run.

Where advisors now offer a skill and service is their ability to help clients to juggle the various demands on their money and how it all ties in with their goals. For most, there is not enough money to achieve everything they want to achieve now so there has to be trade-offs, helping clients prioritise what is the most important issues to tackle this year and a timeframe for when they are going to achieve it.

This is a huge shift from constantly trying to get the highest return (see the advisor who moved all his clients to property) to an advisor who helps you achieve your goals, things that are important to you. This is what true financial planning is.

Catching the retirement wave

Goal based advice is carrying over into retirees too. After decades of wealth accumulation, a retiree’s needs have changed. They are now in the spending part of their life and they want assurance from their advisor that they have enough money in retirement to enjoy their current lifestyle.

An advisor has a number of different factors to take into consideration when advising retiree’s; living too long, nursing home fees in later life, Irish parent’s increasing role in helping their children out financially in getting on the property ladder, market volatility with their investments.

The aging of advisors

In the US, 43% of Financial Advisors are over 55 years of age and 1/3 of advisors will retire in the next 10 years. This generational gap between advisor and the Gen x & Y client has lead to a disconnect between advisor and client. The advisor simply does not understand the needs of younger clients, the pressure of getting on the property market, the cost of creche fees and school fees. They may not make full use of the technology tools now at their disposal, leading to frustration for the younger client.

A new investment environment: 3 lows and and 2 highs

Investors are now forced to navigate an investment environment plagues by 3 lows and 2 highs:

  1. Low interest rates
  2. Low inflation rates
  3. Low/Slowing rates of economic growth
  4. High volatility
  5. High levels of financial leverage

These changes in the investment environment means that advisors need to spend more on resources to research and produce different models to suit different investors. Advisors have to increase their communication to their clients in times of volatility and have rebalancing strategies to ensure that their clients investment portfolio stays in line with the level of risk they want to take.

Rising cost of risk and heavier regulatory burden

Deloitte discuss where they see the regulatory burden shifting in 2015-2016. I will just talk about one of them:

Consumer Protection: The concept of putting the consumer first and acting in their best interest is a common theme in the guidance issues by regulators.

The concept of putting the consumer first?! That should be a given. Advisors should be working for their clients and given them good advice on their finances. If that means telling them “you know what, you’re doing just fine they way you are, no need to do anything”, then they advisor should be doing it.

From reading the Deloitte paper, there is definitely a shift from the way people want to get advice. Thankfully, the number of advisors who have recognised this and who have changed with it has grown too.

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