What is the future of financial planning?

Kelly BiggarResearch, insights & industry news

What is the future of financial planning?

Simon & Kelly contributed this article on the future of financial planning to Wealth Tribune – they discuss understanding the client of the future, digitalisation & marketing, growth strategies and gender diversity, among others.
The financial planning industry is one that has been undergoing immense change since the financial crisis. Despite wealth creation in the UK being relatively muted since 2007-08, margin compression, and increased regulation, it still remains a very strong sector to work in. Wealth management also remains very attractive to those keen to invest in the industry itself. From private equity firms to industry consolidators, many seem keen to increase their market share of the wealth management industry. The pandemic has highlighted in many ways the robust nature of the industry, and most firms we speak with will feel they’ve outperformed their expectations since the pandemic started. Yes, markets have helped, clients topped up their investments at the worst of the stock market dip and, in an uncertain world, the demand for advice increases. However, the industry is dynamic and has overcome other challenges in the past.

Looking forwards, financial planning firms lend themselves well to remote or hybrid working, meaning there are opportunities for cost savings on office space and, with clients managing far greater aspects of their life online post-pandemic, there are huge opportunities for more interactive and frequent digital communication between wealth manager and client. The once hard to access CIO or senior executive can now speak to a large audiences in multiple locations via the miracle of cost-effective video conferencing, and clients enjoy it. The future looks very bright, but as ever there will be challenges.

According to a study from J.D. Power in 2019, the average financial adviser is about 55, with 20% of industry professionals 65 or older. The industry is nearing a cliff edge in terms of losing experienced advisers. This problem is compounded by the growth strategy of trying to gain market share by hiring experienced advisers with transferable client bases, rather than taking on trainees. In short, unless the industry sees an influx of new talent, there will be too few advisers to manage existing client numbers. This is without factoring in population growth. The Office for National Statistics expects the UK population to exceed 70 million during 2031. There is also expected to be an enormous intergenerational wealth transfer over the next 30 years as baby boomers, who according to the FT control 80% of UK private wealth, pass on assets to younger generations.

Whilst clients can always be lost at the point of transfer, in reality this distribution of wealth to a larger number of the population will mean the need for advisers will only increase and not diminish. At present, many firms are trying to plug this talent gap by asking more of paraplanners. In essence, they are trying to leverage a planner’s time by providing them with more support in the same way a law firm does with their lawyers. The reality is this has been causing huge competition for paraplanners for some time, and this shortage of paraplanning talent – especially as firms are still reluctant to train junior advisers (and of course this takes years and the demand is now) – is causing a bottleneck for many adviser firms. The balancing of short-term needs coupled with demographic and technological shifts will mean that firms need to be agile. As Walt Disney so aptly put it “Times and conditions change so rapidly that we must keep our aim constantly on the future”.

The future of wealth management for us breaks down into understanding the client of the future, digitalisation, people strategy, and increased focus on acquisition via marketing.

Understanding the client of the future

According to Accenture, women and millennials will be a much larger portion of firms’ client mix. Currently 42% of financial planning clients are female (Source: Aviva Financial Advice, January 2021), and 60% of of Britain’s wealth will be in the hands of women by 2025 (Centre for Economics and Business Research). Yet 73% of female wealth management clients in the UK feel financial advisers misunderstand them. Whilst Aviva discovered that men and women have little preference on the gender of their adviser, this changes if divorced or widowed and 70% of widows in the US change their adviser within a year of their spouse’s death (McKinsey Global Institute). Looking at the bigger picture, wealth will also be more internationally distributed. These changes can’t be ignored.

EY also pointed out that private clients will increasingly look to their wealth management providers to provide more coaching around life goals and budgeting. In an industry that has struggled to communicate its value add to customers, it is around coaching that firms must improve the quality of their message.

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We feel there will increasingly be a correlation between firms adopting technology and success. Not only can technological improvement free up an advisers’ time, it can reduce the need for back office support, and there are real gains to be had with regards to client interaction. Stereotypes that older clients aren’t digitally engaged are proving to be just that; stereotypes. Even the most simple digital solution, like video calls, will reduce adviser travelling time, and may actually increase the frequency they speak to clients.

People strategy

Understanding the demographic challenges of the adviser community, wealth transfer over the next 30 years, and the client of the future, it is clear that the industry needs change in three areas, namely: more trainees, gender balance, and diversity.

There are simply not enough advisers with moveable books for every firm to have attracting advisers with a client base as their core growth strategy. Firms who are able to consistently grow organically and invest in more trainees should after a time be able to avoid some of the challenges of being overly reliant on hiring experienced advisers. Trainees at the start of their career are more likely to be digital natives too, who embrace technology as a way of interacting with clients.

It is estimated between 11-15% of the adviser population is female. Even if this number was in reality 22%-30%, it is clear from the figures above that the industry needs more female advisers. Indeed, the industry will benefit significantly from an increase in diversity programmes, which will enable it to bring in new experiences and insights.

The financial planning sector has reinvented itself and adapted because it has attracted dynamic individuals. Continued investment in attracting the right talent is important and hybrid working may well help adviser firms look further afield in attracting talent from previously untapped talent pools.

Acquisition via marketing

In our experience, firms are either fantastic at generating clients via marketing, or it’s not really on their agenda at all. There doesn’t seem to be a middle ground. However, we feel many firms could benefit by increasing their marketing efforts and by looking to other industries to learn. Improvement in this area will not only help support existing advisers in growing their business, but also act as a differentiator in attracting top talent.

Many wealth managers now look forward to the future with real optimism. As restrictions are eased, adviser firms will accelerate their growth programmes, with many looking to grow their firms significantly over the next few years. It will be great to see the next chapter in this industry’s story.

Wealth Tribune - Fram Search

About Fram Search

Established in 2010, Fram Search is a specialist financial services recruitment consultancy. We focus on mid-to-senior hires in the UK and internationally. Fram has one of the leading Wealth Management recruitment Practices in the UK.

We provide high quality contingent and retained recruitment services to boutiques and global brands. We have long established relationships, outstanding market knowledge, and access to deep talent pools. Fram takes a highly consultative approach, combining outstanding tech with a human approach. We are proud that our contingent fill rate is nearly three the industry average and we augment our retained search methodology with rigorous psychometric testing. We take ESG seriously, we are champions of diversity and all staff have undertaken unconscious bias training, we also carbon offset.

Please contact us on 01525 864 372 / [email protected] to learn more.

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