Change is inevitable in our industry and ensuring future success depends on being able to adapt to those changes while also delivering fair value and positive outcomes to customers.
However, the area the industry does not seem to have addressed yet is how to effectively engage and service the next generation of wealthy clients.
What works for one customer segment will not necessarily work for another and the same is true between the generations. Currently the wealth of the next generation will most likely be built up via their employer (auto-enrolment) or direct-to-consumer (and largely non-advised) online offerings. As a result there is little in the way of brand awareness or loyalty for this demographic.
But it is important to remember that in this post-pension freedoms world, pensions can now be passed down a generation (albeit HM Revenue and Customs will take its slice). So soon, the next generation of clients are going to inherit the wealth of this current generation, and the current managers and advisers are likely to find these assets flowing out of their influence.
Focus on commerce
The typical business models of the advice sector have evolved in response to the regulator’s sourcebooks, with the business arranged in silos and processes, and systems designed to meet regulatory demands rather than consumer needs.
That approach does not work for the next generation; they need a single blueprint, a map or vision in order to be able to understand how they achieve financial independence. Unfortunately, there are very few firms currently in the market offering a genuine ‘cradle (or at least graduate) to grave’ financial plan.
Reduced access to financial advice post the retail distribution review and the focus by those remaining advisers on clients with assets to manage also means there are many individuals (not just of the younger generation) who do not have access to face-to-face financial advice.
Planning for the future should not just focus on the shape of the future regulatory and economic landscape, it should also be about identifying the needs of your future customers and ensuring you are appropriately equipped to serve them.
With the regulator moving from a focus on ‘compliance with rules’, through ‘conduct/principles-based regulation’ to arrive at a regime based on ‘customer-centric culture’ and senior management accountability, Financial Conduct Authority regulated firms have an ideal opportunity to start focusing on commerce once again. The only pre-requisite is that the offering needs to be fair, transparent and free of any material conflicts with the interests of its customers.
Review your business model
Once you have a clear idea of the needs of future generations, you should then review your business model and strategy through the eyes of those customers to ensure your proposition is geared towards meeting those needs. This also enables you to identify where sustainable changes can be made in order to deliver appropriate outcomes and meet your obligations.
Although this generation is arguably more at home with new technology than any previous generation, it is important to not fall into the trap of thinking it is a panacea to the issues within the advice market. The answer also lies in your skills and knowledge, and technology is simply the tool that will enable you to deliver this effectively to the next generation of clients.
The future of the advice market looks very different from today’s as the future customers of financial advice are already showing very different characteristics from the current generation. Firms that take a proactive/strategic, rather than tactical/reactive approach to ensuring their future customers are at the heart of their business and that their needs are catered to at all stages of the sales process are more likely to achieve enduring business success.
Andy Sutherland is managing director, advisory services at TCC