What’s next for the financial adviser?

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As I write, I am in the midst of the final preparation for the Christmas break.  I would imagine that most people find this week hard going; whether it’s because you are preparing for a visit from the big man in his red suit or just trying to meet a client’s expectations of getting something completed before the festivities can begin, the demands on your time just seem to keep coming.  But amid the chaos, there is always a point in this week where we accept what can (and can’t) be done and start to relax just like the pain relief advert – you know the one where they talk about   the point between the pain and the moment it starts to subside. It is this point of ‘acceptance’ that is the pivotal moment that moves us from a freeze state to being able to move again.

I think that we are at that point in the financial services industry.  Despite the Regulator implementing multiple initiatives over the years that seek to evolve our culture, many within the industry are still standing firm with the old ways, adhering to the rules but not embracing the principle or spirit of the desired change.  And no role demonstrates this better than the financial adviser.

Many career advisers will have seen a great deal of change in the financial services industry since they first qualified.  The evolution of technology over the last thirty years has had an enormous impact on how they discharge their duties. From how they engage with clients, how they share client information for oversight checks, to how they deliver client services to name a few, and no one can be sure what the next thirty years will look like, especially if technology continues to develop at the same pace.

An increasing body of evidence reveals that the way that we give advice may not have kept pace and be in keeping with the expectations of the younger generations.

But during this time, little has changed in how financial advisers formulate financial planning solutions.  An increasing body of evidence reveals that the way that we give advice may not have kept pace and be in keeping with the expectations of the younger generations.   Advisers may now use technology to gather and document client information, but we still typically create a financial plan in the same way as we did when advisers were first asked to achieve their Financial Planning Certificate.  Indeed, much of the current professional qualification training materials continue to reference a historical family structure that, whilst still exists, is becoming less common.  It also models a traditional employment arrangement which we know many Millennials are rejecting in favour of a less restricted one, often seeking a more entrepreneurial path.  And the products that are in the model recommendations are frequently void of the climate and social considerations that are increasingly important to clients.  Whilst the historic assumptions that many financial services products and processes have been built on are being challenged, we’ve not yet questioned if what we are teaching our new advisers remains current.

The ‘assets-under-management’ model of old worked well for the Boomers and some of GenX, but it is not a model that is seen as commercially viable for Millennials because they either haven’t accumulated enough assets or that they don’t believe they will ever accumulate enough.  A Money Marketing poll in 2022 confirmed the common perception that only Boomers and Gen X are likely to value advisers but, it also appeared to suggest that so do the Millennial generation, just not in the same way, which means we still have something to work with.

With the average age of a financial adviser in the UK being 57, many will have a wealth of knowledge and a lifetime of experience, however, they are also likely to start to retire in the forthcoming years.   This presents us with a great opportunity to build on all the advancements of the last thirty years and re-examine how we give advice to ensure we can meet the appetite and expectations of the younger generations for good quality, personal financial advice, whilst still meeting the requirements of the Regulator.

The internet is awash with individual papers and articles sharing different viewpoints of how the financial services industry has changed over the years and what needs to be done to keep pace with the evolving financial landscape. But when I was looking, I couldn’t find anything that pulled it all together to say how the role of a financial adviser also needs to change.  This could be because some think the role will eventually become a casualty of the technological advances, being replaced by some configuration of Artificial Intelligence.   However, I think the evidence suggests there is still (currently and for the foreseeable future) a need for the human financial adviser, but the role needs to adapt to survive.  I share my top five suggested evolutions based on this research below.

1. Educate – historically advisers were viewed as the experts and sought out when individuals felt they had insufficient knowledge to plan successfully for themselves. Clients were often happy to just do as recommended as they had no reason to question otherwise. However, following recurrent industry scandals, the number of these clients are dwindling year on year.  Many will now seek to first understand before they consider committing.

Millennial and GenX clients tend to be more sophisticated buyers; that is not saying that they are more knowledgeable, but they possess the ability to evaluate the value and merits of a recommendation due to the availability of information through the sources they have grown up with, namely the internet, to check what they are being told.  The information found on forums and through peers will generally be generic and based on fact, whereas when advisers share information, it can feel more ‘sales’ orientated as often they will pick out the features, advantages and benefits of a product specific to the client and leave out other information that will seem less relevant.  There is a balance to be sought where clients feel that advisers are sharing information without selling, versus the amount of information we can realistically share without asking the client to commit to hours of self-study.

Advisers ought to be able to share their knowledge in a way that helps to create trust.  Their explanations need to compare to those that clients find through their own sources and consider how the language used to explain our familiar terminology may impact on a client’s interpretation.  We have long since focused on breaking through the jargon but now we must also consider how we explain it so we can appeal to all our clients.  Millennials like to feel more involved and given time to understand, so advisers may need to be more explicit and not to assume any level of prior knowledge.

Advisers for the future also need to know how to demonstrate their knowledge.  The factfinding process can often turn into a ‘you share your information and then I’ll tell you what to do’ process.  Whilst Boomers are happy to trust what an expert says, the younger generations also want to understand the ‘how’ and ‘why’.  Advisers need to know how to do this efficiently and effectively without overloading the client but giving them enough to trust and be confident that what they are being advised will work for them.

2.Coach – individuals tend to learn how to coach in preparation for their first supervisory position, but coaching skills can be used for so much more than developing those we are responsible for.

A personalised service is becoming increasingly important.  Whilst advice has always been tailored to the individual’s needs, the service may have been more generalised.  Most clients will have been placed on an annual review rota when signing up, with instruction to make contact should there be any significant changes to their circumstances in between time.  Whilst this will still work for lots of clients, many are seeking a service more akin to a personal trainer who is there to provide coaching on an ongoing basis, guiding them to achieve their goals, motivating them to keep going when they have setbacks and to teach them how to make their money truly work for them.

If we can teach our advisers to be coaches as part of their normal development, then it will be easier for them to adopt this preferred style more naturally when appropriate.  We know that Millennials seek less of ‘tell’ and more collaboration; coaching lends itself well to this need.  In turn, it will aid the fostering of long-term relationships as coaching is not something that can be done successfully as a one-time event, but instead something that must be built on over time, reacting to efforts to grow, and challenges faced, so that the adviser turns into a trusted guide.

3.Action orientation – the technological evolution has brought about great changes in how we organise our lives. We have become accustomed to instant gratification – whether be it finding information, being able to complete financial transactions, or to being able to meet our consumer needs such as ordering food or a buying a product.

When presented with a professional adviser who wants to meet two or three times, each for several hours before they get to the point of being asked to act, it can understandably feel very alien.  Whereas we know that it is only by taking the time to gather all the client’s financial information can we make suitable recommendations, many new clients are not used to having to share their information as decisions are frequently made by algorithms using anonymously collected data so that an immediate response can be given.

We must find a way to help our advisers balance the client’s need for immediate action with our need to complete a full suitability assessment before recommending a course of action.  One suggestion is to consider moving the client onboarding point forward.  We can then potentially use client service portals to share information digitally or even connect us directly to different sources on their behalf, thus reducing meeting times. For clients, being able to take action to collate their information and to potentially use tools to analyse it, will help them feel like they are being asked to act much earlier in the process.

4.Segment focus – in recent years, we have often divided our clients by their amount of investable assets. The assumption is that those with more investible assets have more complex needs and therefore need to be looked after by advisers with greater levels of expertise.  Whilst understandable, it may not be sustainable.   With the ways in which our clients work changing, we must improve the financial adviser’s knowledge on how different clients make their money and how their needs may differ to the traditional employed single career path client of old.  They must understand the needs of the entrepreneur and business owner, the serial career changer, the on-off workers (six months on, six months off), the influencers and the gig economy workers, to name a few.  Future advisers must keep pace with both the client’s needs and the client’s world so that they can speak their language.

The removal of the business financial planning module means that many advisers lack the opportunity to learn even a basic understanding of what it means to run a business or be a hundred per cent shareholder in one. Businesses can be a major part of a person’s wealth. ‘My business is my pension’ is something an adviser may hear without understanding what this realistically means, and then when doing holistic financial planning for a business owner, may result in key aspects being easily overlooked.  Couple that with the fact that many business owners become experts in multiple fields, like business taxation, can put an inexperienced adviser on the backfoot before they even get invited to make a recommendation.

Advisers need to regain this knowledge as well as a wider client segment knowledge, perhaps developing expertise in a particular segment to better serve their typical financial needs.  Taking this one step further, it is also worth considering the merits of matching advisers and clients more by generation so that they can relate to the challenges they face such as the intergenerational wealth planning for our older clients, or global mobility for our young professionals, or maintaining your income for those with caring responsibilities.

5.Investor behaviour – Advisers have long since needed to know how to recognise and act on client behaviours so that they can adapt their advice process to keep clients engaged. Many long-standing advisers will have learnt these skills whilst progressing through the customer facing roles, normally for a bank or insurance company, following a once traditional route into financial advice. But even the most experienced career adviser may not have a good grasp of investor behaviour.

The terms ‘behavioural finance’ and ‘behavioural economics’ started to appear in the 1990s but many advisers will only learn about the impact of investor behaviour either through bitter experience or if they study for the Level 6 qualification.  Investor behaviour attempts to explain how social, emotional and cognitive factors affect our investment decisions.  Many of the initial theories continue to evolve with the emerging trends in our financial industry which makes it ‘must have’ knowledge for novice advisers.

An understanding of investor behaviour furnishes advisers with the knowledge to speak in the client’s financial language, create financial plans that fit with their financial beliefs and present them in a way that resonates with their thinking.  We talk about creating a personal financial plan unique to our client’s requirements but with this knowledge, financial advisers really can and continue to, as new themes emerge.

When writing this article, I also sought the opinions of many Millennials and GenX family members, personal and industry contacts to check what I was reading but also to get their views on my ideas.   Some of their interpretations initially shocked me, and I must admit, I initially rejected many of them.  Millennials are the generation who grew up with the internet; they use social media to keep up with their friends, to date, to network, to shop, to consume entertainment, and they are the first generation to integrate all manner of digital technology into their daily lifes.  Given this, it is wholly understandable that they see things differently to many of us financial services industry lifers.

After I took the time to learn more and attempt to understand the reasoning behind their thinking, I could start to examine how and why they had formed their views and opinions, and importantly, what we could do as an industry to work with them given they are our next generation of clients, and our next generation of financial advisers.  Or in other words, I reached a point of accepting that something was indeed amiss with my thinking, and I was ready to take the medicine.  The question is, are the big financial planning organisations ready to do the same?

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As an experienced and professional Consultant and Training Professional, I have had the privilege of working across a wide range of companies and business areas predominately in the Financial Services sector. Wherever I am and whatever job role I am undertaking on behalf of a client, you will always find me influencing and driving others to produce results.

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