The Future of Financial Planning
As the world population grows and ages, we are going to have to assume more and more responsibility for making financial provision for our future. This means that increasing numbers of people are going to require access to affordable advice. But in this technology-driven age, can traditional financial advisory businesses compete with low-cost robo-advisers?
The make-up of the profession is undergoing rapid – and dramatic – change. There are currently some 30,000 FCA-qualified advisers in the UK, and their average age is nearly 55. Last year, around 5000 of them retired – three times more than was expected. Inevitably, this gives rise to numerous questions about the future of the industry, and the ways in which it will need to develop if it is to sustain itself and continue to be relevant.
The relationship that young people have with the industry is not the same as the one that their parents had. Twenty-somethings nowadays have no interest in being tethered to the 9-to-5 regime that governed the lives of previous generations. They don’t want to travel great distances and then queue to meet financial advisers – for whose advice they will have paid handsomely. Instead, they want quick fixes to absolutely everything. With one powerful, hand-held device they expect to be able to work, shop, play, date, book holidays, bank, trade and invest… and all with minimum fuss and with as little in the way of financial outlay as possible. Young people are aware of the shortcomings in their own education as far as financial management is concerned, and so set great store by advice and validation from their contemporaries (other users) and from older people within their family networks. Although they are not entirely sure why, their generation is one that loves immediacy and getting things quickly; money and financial advice are just a couple of the many things they have fetishized in this way.
Step forward Fintech – a panoply of technologies and innovations that aim to supplement, improve and compete with traditional financial methods in the delivery of financial services. With a smartphone and a spare five minutes, you can download the Moneybox app, for example, and start investing the virtual spare change rattling around your wallet in a Stocks and Shares ISA. Or there’s Nutmeg – a low-cost online investment platform that will manage your investment portfolio according to your risk profile. Fed up with wasting hundreds of pounds on foreign transaction fees and exchange rate commissions? Then download Revolut and cut out all those bank charges… and start commission-free stock trading on the New York Stock Exchange and NASDAQ as well.
In short, young people with little or no financial knowledge and experience have an ever-expanding pool of digital platforms providing algorithm-driven investment services that will guide them towards sensible investment decisions, enabling them to sidestep people like us.
Financial planning: a step up from financial advice or management
For many, technology has made engaging with a financial adviser more time efficient. But what about higher net-worth clients – people who don’t just need investment strategies, but instead want to sit down with a human being and discuss their life, what they want to get out of it and what they are trying to achieve over the next 10, 20 or 30 years?
Most of the “heavy lifting” will indeed be done by technology, meaning that financial planners will need to refine their skill set, helping high net-worth clients and leveraging their own behavioural insight to help them onto the right path.
In the wake of the 2008 financial crisis, people started investigating ways and means to use their wealth to pursue experiences in preference to simply acquiring material “things”, using their time to embrace and support worthy causes and using their wealth to effect positive change.
At IQ, we are acutely aware of the need to invest time and resources in the next generation of financial planners so they can help people to do exactly that. The graduates we take on are not just intelligent and educated to a high level: they are empathetic and emotionally literate, and we train them to be able to offer financial coaching, as well as fostering in them an understanding of behavioural finance so they can better support our clients through the trials, tribulations and challenges of modern life – divorce, bereavement, retirement and the like. This “upskilling” of the financial adviser is well under way and is something in which IQ invests a great deal of time and effort.
Burger joints and gourmet restaurants
Robo-advisers will always be able to coexist with financial planners – just as burger joints will continue to sit alongside gourmet restaurants. The two need not necessarily be in competition or mutually exclusive. But asset allocation is one thing… blue-sky thinking, planning and actually forming a relationship with a client underpinned by mutual understanding – that’s something else entirely. An app can build and rebalance an investment portfolio. But it cannot help a client balance competing goals, deal with the financial and emotional impacts of divorce or redundancy or help them navigate a path through too-good-to-be-true investment opportunities. The true value of a high-level financial planner is in what they do in addition to providing financial advice. It lies in helping clients to answer questions about how much they need to save, how they plan on transferring their estate upon their death… and the tax obligations of various investment strategies. None of this can be replaced by an algorithm.
We certainly do not shy away from using technology at IQ. We are continually focused on using the tools available to streamline our business and our modus operandi. But we do not see it as a means to an end. Instead, we use it for the more routine aspects of financial management so that we can concentrate on those things that require a little more in the way of finesse and delicacy: picking the right products, making the right decisions about asset allocation and thematic investing… and, of course, setting aside time to invest the advice we give with the human touch. The new blood that we are bringing into the company, together with the increasing diversity in our profession and the new ideas contributed by bright young people from all walks of life will ensure that we can continue to deliver superlative financial planning services to our clients.
Petronella West is the Chief Executive Officer at Investment Quorum, and is focused on providing personalised financial planning and investment solutions.
This article does not constitute specific advice and investors should bear in mind that capital invested is not guaranteed. Investment Quorum is authorised and regulated by the Financial Conduct Authority.
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