On baby boomers, millennials and ‘golf only’ clients – Consumer behaviours are driving global financial practice management trends

20 October 2017: Cape Town – The main objective of a financial planning professional is to guide his or her clients along their financial journey, taking them from where they are today to where they need to be tomorrow. Among the many challenges for modern day financial planning practices is which business model to adopt to best serve their clients against the backdrop of a dynamic and ever-changing world.

To find out more about how global trends impact on this dynamic segment of the market the Financial Planning Institute of Southern Africa (FPI) hosted a panel discussion titled ‘A global perspective on the practice of financial planning’ during their 2017 Annual Convention, held 19-20 October in Cape Town. The discussion was facilitated by Kate Holmes of the Financial Planning Services Board (FPSB) and included Barry Horner, UK FPSB; Marc van Poeteren, Netherlands FPSB; Dan Busi, Financial Planning Standards Council Canada; and Kimmis Pun (FPSB).

Trends such as digitalisation, generation-specific consumption trends, longevity and robo-advice all demand changes in how customers are advised and how financial product is delivered to them. According to Horner there were significant similarities between what is happening in the UK, South Africa and similarly developed financial markets. His view was confirmed by Busi who observed that advisors were dealing with the same issues and topics regardless of where in the world they were based.”

A trend highlighted during the discussion is the varying need of individuals in different generation-specific consumer segments. Millennials are looking for coaching and mentoring but do not necessarily have the wherewithal to pay upfront for advice whereas the baby boomers fall into the high net worth category that so many advice practices court as clients “The decision advice practices must make is whether to appeal to a broad demographic of young and old or to increasingly look at servicing a niche market,” said Horner.

The panel offered two examples of niche advice practises from the UK- and US, one of which only takes on clients that play golf and another that only services bass fisherman. While opting for a niche client base could prove popular in large markets advice practices in South Africa tend to segment the market by income level. Whatever the case, knowing one’s customer is critical. “To give proper advice in any of the disciplines really requires holistic knowledge of your client,” said Busi.

Skills shortages and succession planning are topical globally too. “In the UK the average age of financial advisors is 55-plus – we built our practice around finding great people and upskilling them through the firm,” said Horner. His concern was echoed by Pun who noted that 78% of financial advisors were over the age of 40 and 55% over 50, with few practices giving through to succession planning. “We need to consider who our customers are as well as who our successors will be,” she said.

Advice fee models have also evolved significantly on the back of rigorous pro-consumer regulation and shifts in consumer behaviour. “We typically offer clients some choice here with either an ad valorem asset fee, a time-based fee, a fixed fee, or some combination of the three,” said Horner. He added that the preferred fee model was often influenced by the client’s assets. The fee question was further exacerbated by compliance issues, with all panellists reflecting on the conflict between affordable advice and the need to comply with regulation. The risk is that an advice gap develops and is perpetuated over time.

A discussion on global advice trends is incomplete without considering how technology is shaping the practice of financial planning. According to Busi the financial planner’s natural protection against the rise of robo-advice and Fintech is the human element. He admitted that changes in the way in which advice was given were in part driven by the shift of transactions from the real world to online, with foot traffic in banks – and the opportunity for face-to-face financial advice – dropping sharply in recent years.

Robo-advice or not, all panellists agreed that the financial planning profession would prevail. “We have a massive opportunity but we must be able to articulate what we do for clients and make sure they can sense that added value,” concluded Horner. One solution could be for advice practices distance themselves from product bias. “Product is only a small part of the equation,” said van Poeteren. “Good advice is unbiased, focussed on the client’s needs and it leads to a lasting relationship that really helps the client”. He concluded that advice should evolve from product-led product-selling to true advice, where product follows advice.

About FPI
The Financial Planning Institute of Southern Africa (FPI), a South African Qualifications Authority (SAQA) recognised professional body for financial planners, which serves the public by ensuring that people who carry the CFP® designation are qualified, experienced and professional. FPI has recently been approved by the South Africa Revenue Service (SARS) as a Recognised Controlling Body (RCB).

The Institute is also recognised internationally and is a founding, and a current affiliate member, of the international Financial Planning Standards Board Ltd (FPSB) based in the USA, along with 25 other affiliate member countries who offer CFP® certification, the highest recognised professional designation worldwide for a financial planning professional. For more, visit www.fpi.co.za or follow @FPISANews.