From Trends to Change: Key considerations for success as a Wealth Manager in South Africa
For a couple of years now, with the rise of fintech, robo-advisers, DIY investing, and low-cost alternatives, the headlines that have peppered financial publications’ front and home pages hinted at the precarious position of the traditional financial adviser. “Death of the adviser”, some shouted; “Endangered: The decline of investment advisers”, claimed others.
The statistics, however, disagree. Research by the Financial Planning Standards Board in the United States (US), for example, argue that the next five years will see a boom in financial planning as baby boomers transfer their wealth and a growing number of younger individuals seek financial advice for guidance on how to make their money work for them in an uncertain world.
Mickey Gambale, CEO of INN8, acknowledges this opportunity in the realm of financial advice, but cautions about the risk embedded for old-school advisers who refuse to change.
“If you are in the financial advice industry you need to modernise yourself and galvanise your business in a very competitive world. There are some advisers out there who are stuck in their ways and, if not careful, they are going to become obsolete,” he says.
The evolution of the adviser label shows how far the profession has come: we’ve moved on from “insurance agents”, to “policy brokers”, to “financial advisers”, through “financial planners” and onto “wealth managers”. In a recent KPMG white paper, new labels were put on the table – the “financial well-being provider”, the “domestic wealth manager”, or even the “global investment expert”.
Whatever label you choose, there are some key trends, Gambale highlights, that are worth your attention if you want to not only survive in the financial advice game, but thrive.
The move to holistic advice
There is a new client on the block; one that has a different attitude towards customer experience and demands real-time, 24/7 access to information and bespoke, customer-centric service. If you want to be successful as a financial adviser, you will have to provide these clients with what they need and deserve.
In a Deloitte report, based on a comprehensive global study of more than 2 000 investors and 500 wealth and asset management firms in November last year, 49% of investors indicated that acting in their best interest was the most effective way for an adviser to build a relationship with them.
Advisers need to switch to an approach that is focused on the individual unique person, and “not on the demographic,” the report reads.
Gambale says anecdotal evidence from advisers is showing that an increasing percentage of their revenue now comes from selling financial advice, instead of products. If clients want cookie-cutter products, they can find it on the various direct-to-customer platforms that offer a plethora of choice.
“As an adviser, you have to step up your game and think about the value proposition that you are offering,” he says. “You have to become a life-long planner.”
That planning function should, ideally, span lifetimes and generations as the “Great Wealth Transfer” is waiting around the corner – the most significant intergenerational wealth transfer from Baby Boomers to Gen X, Millennials, and Gen Z. Forbes estimates the amount at USD30 trillion over the coming years; CNBC believes it to be USD68 trillion.
These younger newly-wealthy individuals will have different social values than their parents and require individual, hyper-personalised attention.
The Deloitte report offers up a warning if you can’t offer that service: Over the last year, one third of investors moved more than 20% of their funds to new financial services providers that could offer them what they want. Over the next two years, another 44% plan to do so.
Wealth planners should look to partner with their clients for the long-haul, hopefully more for better than for worse. This, argues Gambale, is where the recurring revenue model is not only here to stay, but that it should stay.
“I think this model leads to better outcomes. Firstly, the adviser earns as the client earns. Second, it gives the adviser the opportunity, now that there is a steady revenue stream, to invest in the business in order to provide better service,” he says. “This investment brings rigour and structure to the practice and helps them continuously professionalise.”
Do more with less – embrace technology
When such opportunity knocks, you have to answer. But what if you have no time? Most advisers will admit that they are facing an increasing time deficit, bogged down with regulatory compliance and investment management due diligence.
Gambale believes that a significant portion of any adviser’s precious available time should be spent on understanding the tech stack that can be used to augment the client experience. This “time investment” will pay off in the end, he says.
“Financial advice and financial planning are time-based and limited unless you make it scalable by embracing technology.”
And advisers are starting to realise this. They are increasingly adopting digital tools, including emerging AI, to segment client books in order to provide more relevant advice and claim the full benefit of the pareto principle: the argument that 80% of outcomes is as a consequence of only 20% of the causes – applied in the financial advisory world to show that 20% of a wealth manager’s client book results in 80% of his income. A SIX Group study underscores the importance of data and its corresponding analytics, saying it will become a key resource for competitive future wealth management. “In particular, the consideration of external non-financial information opens up the potential for truly holistic wealth management services that will incorporate the customer’s entire life situation,” the study reads.
Advisers should combine human and digital capabilities, embracing the hybrid advice model, says Gambale. He believes that, apart from the latest tech, there are some elegantly simple solutions that can be employed.
“Why not, two weeks before a client meeting, send them a quick three-minute video where you discuss their portfolio, the key points you want to address in the meeting and some of the main financial indicators that should influence decision-making,” Gambale says. “This way you maximise the time with the client when you are face-to-face.”
If you professionalise your service, he says, automating the back office and working on your communication with clients (tip: find a marketing specialist that lifts your comms to a new level), you can improve your price-to-earnings ratio significantly.
Find your place – it’s all about the partnerships and networks
Considering the factors that have so far been highlighted in this article, it is clear: the financial advice game has never been more competitive. However, argues Gambale, putting up fences and trying to protect your business by going completely solo would be counter-productive.
He believes general financial advice practitioners could rather look to partner or join what are known as “advice networks”, leveraging the capabilities of the infrastructure of such network.
“What you should be looking for in a network is an environment where you can find the tools and tech to free up time and that could help to create leads out of your existing book,” he says. “Being part of these networks should also help you to segment your book and, without fear, pass off the less profitable part to another adviser or paraplanner where it will make sense.”
Partnerships that can strengthen your relationship with your client remain the key to success.
“At INN8 we become the strategic partner that puts the adviser and his clients at the core of what we do, building an ecosystem that enables advisers to elevate their value offering,” says Gambale.
Futureproof your business – the impact of replatforming on adviser business
Four and a half years ago, the INN8 investment platform journey began. It was not always the easiest road, but completely worth it, says Gambale.
“We are now at a place where we can drop new features as and when needed. It is like servicing a plane mid-flight,” he says. “We are purpose built and brand new to market which gives us an edge in an environment where other large providers are moving towards replatforming in the near future.”
Legacy platforms will need to upgrade and replatform to keep providing the service their adviser clients require, which could mean an upheaval in the coming years in terms of service delivery. “have you ever tried to live in a house while you renovate it, it’s a nightmare” says Gambale
A lesson could be taken from the UK’s book
In 2020 the Financial Conduct Authority wrote a letter to investment platform bosses to lament the potential risk in technology upgrades.
“Insufficient investment, processes and resources for technology and operations can lead to business continuity issues with services to customers and advisers being unavailable, intermittent or restricted. Poorly planned and executed technology migrations and upgrade programmes exacerbate this issue,” the letter read.
“Change programmes should be adequately planned, thoroughly tested, with clear responsibilities defined up front between your firm and any third parties to ensure quick resolution of any issues.”
This warning came after the cost of replatforming spiralled in that country.
“We will be seeing a number of large players in the South African market embarking on these upgrades. Advisers have to be diligent and make sure that they are not disrupted whilst it happens.”
It’s do or die
Clients will look for financial planning partners that can meet their needs. If they want products, they will find them offered, direct-to-customer, on a silver platter on DIY platforms and from fintech providers.
They are, however, still actively looking for the wealth managers of the future, those visionaries who guide their clients through new and uncertain times, providing tailored and invaluable advice that helps them achieve their goal of financial freedom.
“If you, as a financial adviser, argue that you can stay the same in this world, maybe because you think your clients stay the same, you will be left behind,” says Gambale.
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