19th September 2012
Mindful Money: There has always been a community of advisers but in the past it has been a very informal one. Was the IFP intended to establish a formal network?
Nick Cann: The IFP was set-up in 1986 as a professional body as the founders thought that there wasn't anything else in the market to serve advisers' needs. Members have tended to be early adopters of change so they wanted relevant qualifications and were already looking at options of charging fees for advice well before the regulator moved in that direction. So new ideas have always been at the forefront of what has driven them.
MM: How do you think advisers have been managing the lead-up to the Retail Distribution Review (RDR)?
NC: Those who have been successful are the ones who have shared best practice to stay in front of the curve.
The way I think people become successful is where they have clarity over what they are trying to do. In the financial advice business a lot of focus has been on the solution and the product rather than the client and the service. It's been about finding what they can present to a client as an investment solution rather than working with them to find a strategy that it most suited. Delivering comprehensive Financial Planning is a winning business model.
I think that's where the industry is struggling at the moment. They keep looking at the different initiatives, different products and are trying to work from the regulatory end rather than putting the client first and building from there.
MM: How do you change the emphasis and explain the change to clients?
NC: Clients tend to be driven by emotion and we as an industry have never really engaged very well with them. Whether that's media driven or product provider driven, it's always been a discussion around the product or the solution.
Very few potential clients arrive saying I would like advice on financial planning for the long term. The reality is that people turn up asking something like "can I get a pension" and the advice model will almost always default to talking about solutions for those bespoke issues rather than building a plan that's most appropriate for the individual.
This has lead consumers to think that the advisers should be responsible for delivering performance from the selections they've made. When they see an annual statement, or read a newspaper, and see a fall they therefore find it difficult to contextualise the situation. So there's a massive communication issue to address and build trust with the consumer.
If there's been a proper plan drawn out, clients can understand the nature of the things they invested in and can judge performance relative to the targets they have set. They can then make sure that they review their portfolio regularly with their advisers to make sure they are on track to meet these.
MM: With the difficult economic, are these issues becoming more pressing?
NC: Employment now is going to be far more challenging than it ever was. The significance of this is that advisers need to understand more clearly what an investor's objectives are and what their lifestyle requirements will be to try and match short medium and long term objectives.
Trying to get that information from the individual marks an important step change for the industry and the way Financial Plans are developed with the client.
MM: If employment is less regular there is even greater need for people to begin saving early. Is this a good reason to get the message out to Generation Y early that investment can help them achieve their lifestyle ambitions?
NC: Part of the message advisers need to be giving is that they are there to help people with their choices. To make the case for young people, you could look at a monthly saving model whereby they put as much as they can afford into an emerging market ISA. You wouldn't necessarily look at something like a pension or inflation protection until much later.
Of course, there's a trust issue that has trickled down from banks to affect most of the finance industry. Coupled with that there is also the problem of making the whole thing interesting enough to make it engaging and working out how we can do this using technology to make it affordable.
The notion of having to pay upfront for advice may not be particularly appealing for younger people. Yet they are quite comfortable with a subscription model with their phone, their TV licence etc. so perhaps that would be a more appropriate method.
If you're not making it interesting and you're not finding a way to manage payments it's not going to happen. Also while suppliers are more concerned with selling products rather than meeting lifestyle goals, it's not going to happen.
MM: Is there a perverse incentive at the moment with RDR aiming to improve client engagement but forcing the industry to become more introverted at it reforms?
NC: There is a sort of perversity around it in that the regulations provide a good outcome to clients because it makes advice more professional and transparent. Once we get through the immediate fallout of new regulations the shape of the industry will be different and the quality of the advice should be good.
However, it will have naturally pushed advice towards middle and upper income individuals due to the costs of delivering that service. So the question then becomes: how does the rest of the world access advice?
The answer to that has to come from the client side rather than the product side. There has to be some sensitivity from both regulators and the industry to how that hole gets filled. We might see different players coming into the market to meet that demand. We also mustn't lose sight of the fact that many of these individuals should be prioritising the paying off of debt.
More from Nick Cann:
To receive our free daily newsletter sign up here.