How to offer financial planning to the mass market

Advisers are moving more upmarket.

As the regulatory environment for financial advisers continues to evolve, the time and cost of serving clients compliantly have increased significantly. This shift has resulted in many financial advisers moving up the market and serving fewer but wealthier clients.

The increased compliance requirements have led to higher costs for financial advisers, including compliance software, training, and ongoing monitoring. Additionally, the time required to stay compliant has also increased, taking away time that advisers could spend serving their clients.

Financial advisers can focus on providing higher service and expertise by moving up market and serving fewer but wealthier clients. This new focus allows them to specialise in retirement planning, investment management, or estate planning, which can significantly benefit their clients. Additionally, working with fewer clients allows advisers to provide a more personalised and tailored service, which wealthy clients highly value.

The decision to move up market and serve fewer clients is not taken lightly. It requires a significant investment in time and resources. Still, for many financial advisers, it is a necessary step to remain competitive and provide the level of service that their clients expect.

In summary, the increasing time and cost of serving clients compliantly have resulted in many financial advisers moving more upmarket and seeing fewer but wealthier clients. This change allows them to focus on providing a higher level of service and expertise, which wealthy clients highly value.

Focus on investable assets more than net worth.

When it comes to financial advice, many firms have chosen the assets under management (AUM) fee model. This model is based on a percentage of the assets being managed and is a popular choice among firms for several reasons.

First and foremost, the AUM fee model aligns the interests of the financial adviser and the client. The adviser is financially incentivised to grow the client’s assets, which benefits the client. This stance creates a mutually beneficial relationship where the adviser is motivated to provide the best possible advice and service.

The AUM model provides the adviser with a predictable and stable revenue stream. Instead of relying on a one-time advice fee or hourly fee, the adviser can rely on a steady income stream that is directly linked to the performance of the client’s portfolio.

Additionally, the AUM fee model allows for flexibility in the services provided. Advisers can offer various services such as portfolio management, financial planning, and retirement planning and charge a percentage of the assets they manage accordingly. This strategy allows the adviser to customise their services to the client’s specific needs and allows them to charge accordingly.

Lastly, the AUM model is transparent and easy for clients to understand. Clients can see the cost of the services they are receiving and can easily compare it to other options available in the market.

In conclusion, most financial advice firms have chosen an asset under management fee model because it aligns the interests of the adviser and the client, provides a predictable and stable revenue stream for the advisor, allows for flexibility in the services provided, and is transparent and easy for clients to understand.

This advice model excludes several market segments.

For most financial advice firms, prospects who do not already have large amounts of investable assets may not be suitable as clients. This rejection is because most financial advice firms operate on an asset under management (AUM) fee model.

For prospects who do not have large amounts of investable assets, the AUM fee may not be financially viable for the client or the adviser. The fee may be too high in proportion to the managed assets, resulting in a high cost for the client and a low return for the adviser.

Additionally, the services that financial advice firms offer may not be as relevant for prospects with small amounts of assets. For example, many financial advice firms specialise in retirement planning, investment management, and estate planning, typically of more importance to those with significant assets.

It’s not to say that people with smaller assets don’t need financial advice, but for most financial advisory firms, it may not be cost-effective for them to take on these clients due to the AUM fee model and the services they offer. Other financial institutions, such as robo-advisers or banks, offer financial advice and products to clients with smaller assets; this can be a better fit for these prospects.

In summary, prospects who do not already have large amounts of investable assets may not be suitable as clients for most financial advice firms because the AUM fee model may not be financially viable, and the services offered may not be as relevant. These prospects may be better served by other financial institutions that offer financial advice and products that cater to their specific needs.

The advice model excludes prospects with high net worth comprised of other asset classes, such as occupational pension schemes, residential and commercial property, business assets, collectables, and savings.

The advice model excludes savvy prospects who wish to run their investment portfolios on investment platforms, such as Hargreaves Lansdown or AJ Bell. It also excludes prospects invested with discretionary managers or stockbrokers.

The advice model excludes aspiring young professionals seeking to accumulate wealth early in the savings journey. It also excludes the beneficiaries of inheritable estates.

As advice thresholds rise, excluded communities increase and advisory firms are faced with the problem of what to do with existing clients who no longer meet their profit targets.

The growth of Robo-advisers and the changing outlook for investors

Robo-advisers growth is changing the attitudes and habits of future generations of investors. Robo-advisers are online platforms that provide automated, algorithm-driven financial advice at a lower cost than traditional human, financial advisers. They have become increasingly popular in recent years, especially among younger investors.

One of the most significant changes that Robo-advisers are bringing about is a shift in how investors think about and interact with their financial advisers. Younger generations are more comfortable with technology and are used to getting information and making decisions quickly and easily. Robo-advisers provide a convenient, user-friendly experience accessible to anyone with an internet connection. This accessibility makes it easier for younger generations to take control of their finances and invest in their future.

Robo-advisers are also changing the way investors think about fees. The low-cost, transparent fee structure of Robo-advisers makes it easier for investors to understand the cost of their investments and compare them to other options. This technology encourages more investors to shop around and make informed investment decisions.

Another change that Robo-advisers are bringing about is a shift towards long-term investing. Robo-advisers typically use low-cost, passively managed index funds, which aligns with a long-term investment strategy. This investment strategy is encouraging future generations of investors to focus on building wealth over time rather than trying to make quick profits.

In summary, the growth of Robo-advisers is changing the attitudes and habits of future generations of investors. They are making it easier for younger generations to take control of their finances, encouraging more transparent and low-cost fee structures and a shift towards long-term investing.

Financial planning offered as a standalone service can reengage disintermediated customer segments profitably.

Financial planning offered as a standalone service can reengage disintermediated customer segments profitably. Disintermediation is when customers bypass traditional intermediaries such as banks and financial advisers and instead opt for direct investment methods such as online trading platforms or Robo-advisers.

By offering financial planning as a standalone service, financial firms can reengage disintermediated customer segments by providing a personalised, tailored service that addresses each individual’s specific needs and goals. This tailoring can be done through a comprehensive financial planning process, including financial goal setting, asset allocation, risk management, tax planning, and retirement planning.

This approach allows financial firms to differentiate themselves from online investment platforms and Robo-advisers, which typically focus on the investment process rather than the overall financial planning. Additionally, by offering financial planning as a standalone service, financial firms can charge a flat fee, which can be a more sustainable business model than relying on an AUM fee.

Furthermore, financial planning as a standalone service can attract and retain new clients. By providing a comprehensive financial planning service, financial firms can help clients to understand their financial situation better, identify areas for improvement, and develop a plan to achieve their financial goals. This focus can lead to increased client satisfaction and loyalty, as clients will feel that they are getting value for their money.

In summary, financial planning offered as a standalone service can reengage disintermediated customer segments profitably. Financial firms can differentiate themselves from online investment platforms and Robo-advisers and attract and retain new clients by providing a personalised, tailored service that addresses each individual’s specific needs and goals.

The limitations of Robo advisers

Robo-advisers have revolutionised how investors manage their financial assets by providing low-cost, automated, and algorithm-driven financial advice. They make it easy for investors to access a wide range of investment options, including stocks, bonds, mutual funds, and exchange-traded funds (ETFs).

However, it’s important to note that Robo-advisers do not address all of an investor’s assets. Robo-advisers typically focus on financial assets, such as those mentioned above, and may not consider other assets, such as property, business interests, or collectables. Additionally, Robo-advisers may not provide comprehensive financial planning services like tax planning, estate planning, or risk management.

While Robo-advisers are an excellent tool for managing financial assets, it’s essential for investors to consider their overall financial situation and to work with a financial professional who can provide a more comprehensive approach. A financial planner can help investors take into account all of their assets, including non-financial ones, and provide a more holistic view of their finances.

In conclusion, Robo-advisers are an excellent tool for managing financial assets such as stocks, bonds, mutual funds, and ETFs. However, they do not address all of an investor’s assets and may not provide comprehensive financial planning services. Investors should consider their overall financial situation and work with a financial planner who can provide a more holistic approach to their finances.

Standalone financial planning is generic advice and is not an FCA-regulated activity.

Financial planning is general advice. Financial planning only becomes a regulated activity if it is done in the course of or in preparation for a regulated activity, such as regulated financial advice.

There are two advantages here that lower the cost and hence increase the profitability and viability of delivering a standalone financial planning service.

The first is that the absence of regulated activity can remove up to 85% of the service cost. Financial planning, client engagement, and education are 15% of the advice firm’s working week; see Advicefront study.

The second and perhaps most significant difference is that financial planning can be delivered to groups.

With the right technology, one financial planner can service hundreds of customers simultaneously. This development lowers the cost dramatically and creates a whole new paradigm. We call this cyborg financial planning.

Cyborg financial planning is a new approach that combines human and artificial intelligence (AI) best to provide a more comprehensive and personalised service to clients.

The benefits of cyborg financial planning include the following:

  1. Increased Efficiency: By leveraging AI and automation, cyborg financial planning can process large amounts of data and provide financial recommendations in a fraction of the time it would take a human advisor. This capacity allows for a more efficient and timely service for clients.
  2. Better Risk Management: AI can analyse large amounts of data and identify patterns that may not immediately appear to a human adviser. This capacity allows for a more accurate risk assessment and a better understanding of the potential impact of different investment strategies.
  3. Personalisation: Cyborg financial planning can account for a wide range of data, such as investment preferences, risk tolerance, and financial goals, to create a personalised financial plan for each client.
  4. Cost-effective: By automating specific tasks, cyborg financial planning can lower the cost of the service and make it more accessible to a broader range of clients.
  5. Continuous Monitoring: Cyborg financial planning can monitor the performance of investments and make adjustments as needed, ensuring that the plan stays on track to meet the client’s financial goals.
  6. Transparency: AI-driven financial planning is transparent and explainable, providing a clear view of the decision-making process and the reasoning behind the recommendations.

In summary, cyborg financial planning is a new approach that combines the best of both human and artificial intelligence to provide a more comprehensive and personalised service to clients. It offers improved efficiency, risk management, personalisation, cost-effectiveness, continuous monitoring, and transparency.

Financial planning can evolve to include planning the client and all of their assets, not just their financial assets. Also, clients can receive plans to make money, not simply save money they have already made. This planning is done by identifying the client’s productive assets, leveraging entrepreneurial opportunities and creating sustainable livelihoods.

We begin by raising the client’s financial activation levels using extensive financial education content libraries such as MoneyFitt (courses, videos, activities), community support groups (Facebook groups and live Zoom webinars), and end-user AI-driven financial planning apps, such as HapNav. You can view these tools at the Academy of Life Planning.

In times of client stress or change, we deliver financial planning on a one-to-one basis. This adaptability significantly lowers the client’s price for financial planning whilst maintaining profitability levels and client advocacy for the firm.

Financial Activation Measure

The financial activation measure is a tool that helps financial firms assess a client’s level of engagement in their finances. By identifying clients with lower activation levels, firms can work with them to improve their engagement and, ultimately, their financial outcomes.

Financial activation measure assesses clients on four key dimensions: knowledge, skills, confidence, and self-efficacy. These dimensions are used to classify clients into four levels of activation:

  1. Level 1: “inactive” clients who have little knowledge, skills, confidence, or self-efficacy.
  2. Level 2: “minimally active” clients with some knowledge and skills but lack confidence and self-efficacy.
  3. Level 3: “moderately active” clients who have moderate knowledge, skills, confidence, and self-efficacy.
  4. Level 4: “highly active” clients who have high knowledge, skills, confidence, and self-efficacy.

Highly active clients are more likely to take control of their finances and make better decisions about their wealth. They are also more likely to adhere to treatment plans and have better wealth outcomes. By identifying inactive or minimally active clients, firms can work with them to improve their engagement in their financial well-being, leading to better financial outcomes.

Financial activation measures are easy to use and can be administered in just a few minutes. It has been validated by the National Health Service for improving health outcomes with a wide range of populations and is a reliable and valid measure of activation. By using financial activation measures, firms can improve the advice they provide to their clients and ultimately improve outcomes for clients.

For further details, visit the Academy of Life Planning.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s