The most important sale for financial advisers…is themselves

More and more often, advisers are having to achieve the ultimate sale to clients, themselves. The rise in popularity of DIY investment solutions and off-the-shelf products means that before advisers can talk solutions with their clients, they regularly have to justify their value in providing them. IFA Magazine’s Jenny Hunter looks into what’s changed and what we can do about it too.

The past vs the present 

In the past, people would go to experts about the things of which they had no knowledge. At the risk of sounding like I’m talking about ‘the good old days’, this just doesn’t seem to be the case anymore. 

Now, we are seeing more and more people seek advice from non-experts, such as friends and family, when looking to make financial decisions. Whilst this used to happen occasionally, this approach seems to have risen in popularity which means the value, knowledge and expertise of financial advisers is often overlooked in favour of something seemingly less valuable. 

I‘m sure in a lot of cases a client wouldn’t ask their friends and family about how to fix their car (unless they were a mechanic of course!), so why do some clients seek advice from laymen rather than listen to guidance from a professional? Assuming of course that the adviser is competent and is able to instil confidence in their client. Could it be the less than positive reputation that a minority of advisers managed to take industry-wide, a lack of understanding about what advisers actually do or just the changes that have taken place throughout the industry and the world over the past decade or two?  

Why have things changed?

So, the question is not only why is this happening so often, but why is it happening now? 

I believe AI has a lot to answer for in these examples. With many of the investment markets already running on autopilot, using algorithms to make trades and flagging market positioning, has this finally filtered down to the average investor? 

You can see the appeal.  Things like ‘answer these 10 questions and your perfect risk profile will appear’, or ‘when you get to age 55, we’ll automatically reduce your risk’ or even ‘click these three buttons to transfer your pension or top up your investments’ (without an illustration or suitability report of course) are designed for today’s fast-paced lifestyles. 

The reality is that a lot of everyday investors may think they know what they are doing because they’ve watched some videos online or read a book. Realistically though, there is much more to financial advice than convenience. There is a reason this sector is highly regulated (a bit too much in my opinion but there you have it), or why to be an adviser you have to be so highly qualified. It’s because it’s much more nuanced than most people may think. 

And that’s another thing that is hindering the adviser and the value they bring. Regulation. The tightening of regulation over the past ten years has meant that the amount of paperwork and box ticking that an adviser has to complete for even a simple case of advice has reached ludicrous levels. The way this has presented itself is in a number of ways. Financial advisers have to raise their costs to account for the time it takes to tick all those extra boxes, and it takes longer for an investigation to be completed as advisers, providers and compliance teams have to adhere to innumerable and sometimes conflicting guidelines. Clients are understandably fed up with it as they are affected by the association in the price they pay and the service they receive. 

Why wouldn’t they opt for the low-cost, DIY solution that doesn’t come with time delays and reams of paperwork to complete and read? The concerning thing is, that the clients unwittingly take on the liability of that decision with minimal protection. That’s because these setups are usually effectively ‘execution only’ arrangements, which could have disastrous consequences that they are not even aware of. 

It could be many things combined with a thousand other things going on in the world and society. Whatever the reason for the advice gap, it’s good to remember the genuine value that advisers and the advice they provide, bring to people’s lives. 

The cost vs the value 

In my opinion, the value of the adviser is all too often overlooked. That’s why, charging for an adviser’s first client meeting is a must. That’s even though sometimes it doesn’t sit well with clients, who may have objections about paying for something so intangible. What they may be forgetting is that the advice, knowledge, insight, and recommendations you make in that first meeting are extremely valuable. The service that advisers provide is only possible because of the experience, qualification and ongoing development that is a requirement of the job. Giving any advice comes at a price, both a monetary and a time cost. 

It can be awkward trying to explain all of that to a client, especially one who finds it hard to see past the fact they won’t initially be walking away with a product. It seems strange to me that if clients were to seek legal advice they would expect to pay, but financial advice doesn’t seem to have the same kudos. Again, perhaps a perception issue that is yet to be resolved, but one which could be helped by charging upfront for your value and setting that precedent early on. 

The risks of investing 

One of the most obvious areas of added value is in investing. Most clients are not experts at investing and do not have the resources to know what, for them, good or bad looks like. 

And yes, we should use AI in this and other areas of financial planning as much as we can, to make our work more efficient and the service to clients even better. But there are still areas that even AI would struggle with, namely the softer and more human touches.

If you don’t know what you are doing as an investor, then there are so many mistakes you can inadvertently make.  

If we take a look at a few examples in a bit more detail and apply these to one of the most asked questions of 2023 ‘Why don’t I just move to cash?’, we can see straight away the value of an adviser.

1. Expecting too much. 

Inexperienced investors were expecting the market to provide high returns in extremely challenging conditions over the past few years. In short, that is small-picture thinking.  

If clients had robust investment goals, then the pull of higher returns on deposits would not have challenged their direction.

If clients had understood the benefits of a diversified portfolio and the careful balance of assets, then they would have realised that moving to cash in the short term was not the answer.

• Focusing on the short term. 

It’s all too easy to focus on the short term, looking at what they can get on deposit in the next year, rather than, looking at markets vs cash over their actual investment horizon, which could be 20 years.

• Buying high and selling low. 

The likelihood of coming out of the markets to go into cash at a high point is low. The likelihood of you returning from cash into the market at the exact right low point is also, extremely low.

Everything else 

And it’s not only the investing or technical side of things where value can be added. Advisers bring so much more to the table.  

Here are many, but not all, of the reasons why advisers are so valuable outside of the investment space. 

• Experience in talking to other providers or professionals – probably more for the paraplanners amongst us but that time spent on the phone quizzing providers on their paperwork or dealing with a client’s accountant definitely adds value. 
• Asking the right questions – clients might think they know what they want, until they sit across from a financial adviser, and they are asked the right questions as part of a comprehensive financial planning service. I can’t count the number of times when in my own experience, clients have revised or narrowed down their objectives after a meeting and after they are prompted to really think about their future and what they want. 
• Knowledge of tax allowances – the rules around all tax-efficient investments, including ISAs, pensions and things like EIS are complicated. So, making sure clients don’t fall foul of those rules and get the most out of their money is hugely valuable. 
• Support during market and economic events – providing context around cause and effect during highly emotional events that affect markets such as elections and war, can be extremely reassuring. Or even help with things like inflation and interest rate and explanations around economic cycles and what they should expect, can stop a client from overreacting or taking a counterproductive action like panic selling in a market downturn.
• Support for families when ‘dad dies’ – as much as AI can be useful, it won’t put its arm around you when you lose a family member. Advisers can provide objective and valuable emotional and logistical support in times of distress especially if support is given with one of the most stressful processes seemingly ever, probate. 
• Picking the right product. – clients may have an idea of what they want to achieve but advisers have high levels of industry knowledge and can usually immediately bring to mind a product that could help achieve an objective and provide a solution to a client problem. 
• Estate planning – is as valuable as investment planning, making sure a client’s affairs are arranged so it’s easier for their loved ones when they die, or implementing valuable inheritance tax planning can be just as lucrative as making sure their investments are set up efficiently and appropriately. 
• Non-emotional objective opinion and guidance – when clients speak to family and friends about their financial planning, they are obviously getting a biased insight, mostly subconsciously. Adviser guidance and recommendations are completely objective and can raise solutions and issues that may have not been flagged before. 
• Technical knowledge – I think this one explains itself. Not everyone has those exams and knowledge for a reason. It takes a long time and it’s hard.  
• Accountability – clients may have great intentions but follow through can be hard. Regular catchups and a holistic financial plan can really help to make clients accountable for the actions they know they should be doing, such as contributions, tax planning or even spending their money. 
• Vulnerable clients – has been elevated in awareness since Consumer Duty and is one of the biggest areas where financial advisers can make a difference – in helping those who really need it. Being there in terms of support and guidance for those with vulnerabilities can tangibly make people’s lives better. 

Conclusion

Who knows if eventually AI will take over completely and steal everyone’s jobs as we keep getting told. I’m thinking (and hoping) that things won’t be that dramatic and that there will always be a place for sound, professional, human advice in financial services. It may look very different in ten years, as it did ten years ago, but there will be value to be added for the foreseeable future.  It’s just up to all of us to let everyone know what the value looks like.  So, I hope this helps financial advisers out there know their worth and makes it a bit easier to make that sale to any clients that aren’t already sold on the idea of having a rewarding relationship with a trusted, expert financial planning professional.