“Work in progress”

I was asked an interesting question by Money Marketing Interactive last week: “What one word or phrase do you think sums up the state of the financial planning profession today?”  

Immediately, a number of potential answers came to my mind: “In rude health?” “Frustrated?” “Nervous?” “Paranoid?” “Complacent?” “Lacking in diversity?” In the end I came up with “Work in progress.” Why? Because I think there is still work to be done to make sure that what used to be an industry is now a profession.

Just to be clear; I am not suggesting that there are no businesses acting professionally. In fact, my sense is that professional financial advisers are in the majority. But until every individual and every firm acts professionally there is a risk that financial planning will not be considered a profession by consumers, accountants, solicitors, journalists, other constituencies and, potentially, regulators. After all, “mis-selling” is still a term which is used frequently when, in fact advisers are no longer selling products but selling advice. And that brings me to the contentious issue of adviser charging. “Oh God; not more of this nonsense!” I hear you say. Or at least I hear some of you say.

Anecdotal evidence suggests that most clients are happy with initial and on-going fees being taken from products or platforms. And given the increased transparency of charges across the whole value chain it is likely that these clients will be well aware of what they are paying and what services have been promised. But there is a potential conflict of interest here for firms committed to adviser charging; because no transaction can equal no income. Let me stress; I am not suggesting that adviser charging equates to product pushing. But what I am suggesting is that it might be perceived as product pushing. And perception can be as important as reality. Time to think again about a different approach?

On a more positive note, there is another reason why I described the financial planning profession as “Work in progress”. To try and evidence the potential scenario I am going to describe I need to go back in time to the late 1960’s and a chap called Julian Gibbs. Older readers might remember his regular column in Money Marketing. I am pleased to say that last time I saw him he was in great form; in his eighties and still passionate about the market. I owe him a favour as he introduced me to my wife forty years ago. And if you are a financial adviser, you owe him a favour as well. Why? Because he invented your business model!

Julian Gibbs was born into the family business of Anthony Gibbs which was an English trading company established in 1802. William Gibbs became the richest non-nobleman in England by shipping tons of “guano”. (If you want the details please consult Wikipedia!) Anyway, by the time Julian was working in the business it was focussed on insurance broking and banking. And he came up with a great idea. In those days, people used insurance brokers for insurance and stockbrokers for investment. Why not build a business which covered both? Hence Anthony Gibbs & Associates the first financial adviser firm in the UK. As I recall they actually ran commercials promoting the brand on ITV. But as I also recall, “Pioneers get scalped; settlor’s make money” And the business could not be described as an outstanding commercial success!

So why is this relevant to “Work in progress”? Well maybe there is an opportunity for another new business model. A 2020 digital model. Today, the financial adviser is looking after the investment, protection and perhaps mortgage needs of clients. And the adviser probably knows more about the individual than anyone else – including quite possibly the family. Who would be better to provide life coaching? I know many firms offer this already. Why not you? Let us take it further. 

I read about and hear about “Wellness.” And I am sure you do as well. Mental wellness, physical wellness, financial wellness. At the moment, consumers may need to go to three different organisations to improve their wellness. And the people who they see for mental wellness are unlikely to know how the client’s financial wellness might be impacting the former. There is a disconnect: exactly as insurance and investment were before the invention of Financial Advisers

I’m not suggesting that financial advisers offer all of these services themselves. But perhaps they could curate a range of other professionals, in addition to say accountants and solicitors, and be the single point of contact. Or at least the first point of digital contact?

The final area of “Work in progress” seems to me to be inter-generational wealth. This is a major opportunity. But it is also a major challenge to the financial adviser long term business model. Take a wealthy, healthy couple: Their “children” are likely to be in their sixties or even seventies when the last of their parents die. It’s also likely, sad to say, that their adviser may have already. And what about the grandchildren? They could be in their thirties or even their forties. How do firms retain the family relationships? More important; do they have relationships with the next generation(s)? If not, how can they build them? I think this is a very important area for any firm looking to be acquired or, indeed listed. 

The investable money in the 50+ consumer segment is greater than that of all the younger consumers – before we take housing equity into account. All the more reason why adviser clients tend to fall into this category. “It’s where the money is”. But it seems to me that if financial firms looking to sell their business have not developed an inter-generational persistency strategy; if they have not built bridges with the children and the grand-children of their clients, then the “embedded value” of their ongoing fees may be worth less than they may have anticipated.  Worth thinking about?

January 30th 2019