Future proof your financial advice business- Blog Series Part 1

By Marina Pretorius

Change…the only constant in life. At Amity Investment Solutions we do not only research investment trends, but also stay abreast on the changing trends in the financial advice industry. Our research has shown that among the many drivers of change, three are worth deeper investigation as it relates to the sustainability of the financial advisory profession.

These three drivers are

  1. changes in client expectations,
  2. the drive from regulators to ensure suitable advice, and
  3. the understanding we have today of behavioural finance.

Advisors that adapt their value proposition and advice processes to address these will enhance the value they offer to clients, reduce their advice risk, and build better relationships with their clients. All of these factors support the sustainability of their business.

Changing client expectations

The unprecedented availability of information via the internet has led to clients being more educated today about financial services than ever before, and changed how clients view the value of advice. Being the advisor that helps a client to match a product with a need is no longer seen as advisor value.

Client expectations are further shaped by an increasing focus on wellbeing and a desire to have a life well lived, without necessarily knowing how they can afford it. That is why we see Financial Life Planning and goals-based investing gaining traction over the last number of years. The focus on wellbeing is linked to the rise of the experience economy and the need for more life experiences instead of products with mere functional value. The value of the ticket does not lie in the price they paid, but in the experiences that touch them emotionally. People’s time is limited. They are spoilt for choice which means they want to spend their limited financial resources on something that is personal, meaningful, and memorable.

A financial advice process that is therefore more focused on the person rather than the money will lead to more engaged and loyal clients. Research from institutions like Vanguard, Morningstar, and the CFA Institute found that what clients want and value most is advice that enables a life well lived, helps them achieve their goals with tailored solutions, empowers them to make better financial decisions, and gives them control

Suitability of advice

The drive from regulators to ensure suitability of advice will significantly influence how financial advice is delivered in the future. Although this is a focus of regulators in the UK, Australia, and in South Africa, the UK regulator, the Financial Conduct Authority, has been especially active in this regard and surveys conducted by them showed that very few advisors can demonstrate the process they followed to determine suitability. A white paper published by the FCA titled Assessing Suitability, reported that the process followed by financial advisors of assessing a client’s risk tolerance, risk capacity, and determining the motives behind a client’s goal/need was by and large not robust enough to provide suitable advice.

We can expect that in the years to come there will be an increase in the requirements to determine suitability. Advisors that follow processes that help them get a better understanding of their client’s behavioural profile will not only reduce advice risk, but will go a long way in achieving a specific financial outcome and ensuring that the client experiences financial wellbeing. This ultimately create efficiency, sustainability, and lowered stress for the advisor.

Behavioural finance

Behavioural finance is a field of study that uses the lens of psychology and behavioural sciences to attempt to explain how people take financial decisions in real life, and why their decisions might not appear to be rational every time and, therefore, have unpredictable consequences. This is in contrast to many traditional theories which assume investors make rational decisions.

We can already see the importance of this in the fact that the training curriculums for CFP and CFA include modules in behavioural finance, and why many financial product providers are developing coaching courses to equip financial advisors with knowledge and skills around understanding client behaviours from this angle. This will without a doubt change not only how we deliver our advice proposition, but also the processes we follow to onboard clients, communicate with clients, conduct our review meetings, and maintain client relationships.

These drivers of change imply that the future holds an increased need for personal financial advice, and advisors who address these factors in their businesses will differentiate themselves and create a competitive advantage that will be difficult to duplicate or to replace.

We will continue the conversation in part 2 of this blog series.

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Go to our contact us page to find the necessary details.
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