by Alan Smith
I’ve always tried to follow movie mogul Sam Goldwyn’s advice to ‘never make predictions, especially about the future!’ However, I’ve been reflecting on recent global events and the resulting future direction of travel for those of us working in the financial planning sector and am beginning to see some clear patterns emerging.
The traditional financial adviser office will never operate in the same way again. We had groups of experienced and talented professionals travelling to congregate in a central location and sit in front of a computer screen – every day! It’s incredible we thought this was normal behaviour and tolerated it for so long. I’m not in a rush to head back to those days – ever.
Instead, I believe we’ll move to a ‘hub and spoke’ alternative with companies choosing to maintain smaller offices to collaborate, train, host social events, and in time some client meetings. We’re social creatures and so many ideas and mentoring opportunities are created through unscheduled chats and interactions. We’ll need to be more proactive in fostering that time and space to retain those ‘sliding doors’ moments.
The excitement of working from home and avoiding a daily commute may be premature as employers realise that work is indeed an activity not a location. I think many employers will start to look further afield when hiring staff. A levelling out of compensation across the country may occur – after all, there’s no need to pay city salaries if the team is no longer city-based.
Indeed, some adviser firms are already looking even further and have moved some of their function to countries like South Africa where they can operate for a lower cost.
Be careful what you wish for?
The ease with which clients have adapted to online video meetings has created opportunities to work with clients who don’t live close by. This of course works both ways and ensures that any firm with a decent online presence and brand can enter your location from wherever they happen to be based.
Big city firms might be at a disadvantage with their fixed overheads, especially as marble hallways and oak panelled meeting rooms will be of little value when wooing high net worth clients on a video call.
This in turn could speed up the focus on niche and specialist advisers. If you are the ‘go to expert’ for say, left-handed dentists but were based in the Shetland Islands, you may have struggled to build your client bank. However, provided you have a decent broadband connection and employ widely available technology such as a Zoom and DocuSign, your future is looking very bright indeed.
Smart advisers will now double down on their niche focus to target clients from across the country whilst also looking to strengthen their position locally – a possible win/win.
The sheer unpredictability of events as they unfolded this year, and the completely random nature of the investment markets has surely sounded the death knell of stock picking and fund selection as a core value proposition. The much-anticipated outperformance of the active fund management sector failed to materialise as all funds tracked markets down and then back up again.
In the meantime, the lockdown period has ensured many clients contemplated life, family, work, and their future, all against the backdrop of a global health crisis and a general reappraisal of mortality. Many investors realised that what they needed was not an expensive portfolio but a financial roadmap, a plan to help them chart a course – a Financial Life Plan.
Real financial planning and behavioural coaching is finally taking its rightful place at the centre of a modern advisory value proposition. Clients should be keener than ever to hire a thoughtful planner who can offer this potentially life changing experience.
Reports of many high-profile adviser firms forced to furlough staff suggest that they may need to review the predominant adviser revenue model. For any commercial organisation to align its cashflow to something over which it has absolutely zero control (the capital markets) seems outdated and even irresponsible.
A modern profession operating on a simple retainer fee model would build resilience and longevity into advisory firms and ensure that they had enough resources at precisely the time that their clients needed them most.
The reality is that markets recovered quickly in 2020, the revenue for firms using an AUM-based fee bounced back to pre-pandemic levels. However, many have seen this experience as a ‘fire drill’. The fact that markets have often stayed low for many months or even years during previous crises is leading firms to update their fee model and provide comfort and reassurance to staff, shareholders and clients.
When business owners start to plan their own retirement and sell their companies, they’ll likely benefit from a business with predictable revenue, resilience and profitable margins.
Finally, I predict that at least one of my predictions will be wrong – only time will tell which one!
Alan Smith is the founder and CEO of Capital Asset Management, one of the UK’s leading firms of independent Chartered Financial Planners. From their origins as a small, transaction-based IFA, Alan and his team have grown the business into a modern, profitable, boutique firm, delivering lifestyle financial planning services to a growing client base of affluent families.