Articles - Financial advisers in the modern world


I was in a reflective mood this week. Financial advice has changed a lot during my 30 years in the industry and it’s not all about regulation. Cultural shifts have a distinct part to play in the changing dynamic between the adviser and those being advised. Mutual trust In the beginning there was the insurance salesman (yes, I know insurance goes all the way back to the Babylonians, but even I am not old enough to remember that).

 By Fiona Tait, Technical Director, Intelligent Pensions

 Every week the ‘man from the Pru’ climbed 3 flights of winding stairs to collect a few pounds from my grandmother with the fond hope (hers) that she would be able to pay for her grandchildren’s education. It didn’t, but it did encourage a lifelong savings habit which my grandmother tried her best to pass (fairly unsuccessfully) onto the following generations.

 It is doubtful if she was truly aware that she was putting her money into an insurance policy, but the system worked because it catered to the needs of the target market. Premiums were affordable, easy to pay and something that was of equal importance to her - regular social interaction.

 Bought and sold
 It was of course labour intensive to collect premiums in this way, and insurance companies soon found that it was more efficient to use standing orders. This broke the personal relationship model and paved the way towards an explosion of direct salesmen (I am calling them salesmen because we had yet to see many women in the industry other than in clerical positions), who were motivated by the initial sale and did not have to concern themselves with the consequences.

 This model worked well so long as everything was going well. Providers developed a range of investment based products and the adviser’s job centered on picking the best one based on the tax breaks available. Once a plan was set up there was often no need for any further contact between the client and the adviser, and they could sit back and wait for the investment growth and renewal commission respectively.

 Forced understanding
 Unfortunately, it soon became clear that investment markets really do go down as well as up, and that some of the products sold were not suitable for the type of clients they were sold to. It became necessary for advisers to gain a better understanding of their client’s needs, which led to the introduction of ‘Know your Client’ (KYC) requirements, including an assessment of their Attitude to Risk (AtR).

 Initially seen by some as ‘tick-box’ exercises, these requirements necessitate a closer interaction between the adviser and their client, at least at the outset of the relationship. The information required is often personal and quite detailed, and it requires a considerable amount of trust from the client for them to feel comfortable in sharing it. On the plus side, this leads to a more professional and enduring relationship; the downside is that any breach of this trust results in greater financial and reputational harm.

 The result is that while most advised clients trust their adviser, the image of the profession as a whole is still far from as positive as it should be.

 Working together
 For a true working relationship ,understanding should of course be a two way process. Advisers need to understand their clients, and clients need to be able to understand the advice they receive.

 While many clients still favour the ‘just tell me what to do’ approach, it leaves the adviser vulnerable to future complaints at a time when the claims management firms are more active than ever.

 The difficulty is that a two way understanding is extremely hard to deliver and requires a great deal of time and effort on the part of both clients and the adviser. This in turn impacts on the time (and cost) of delivering advice, as well as the client’s ongoing patience.

 Many just cannot be bothered with, or indeed do not have the ability, to engage with full fact finds and while others may be prepared to go through the process at outset, they cannot see the need to do so on an ongoing basis, even when their circumstances demand it.

 Different models
 I am genuinely supportive of the direction of travel for financial advice but do retain some concerns. The industry has been trying for a number of years to come up with a ‘simplified advice process’, and I believe the need is greater than ever. It’s not about labels, or making life easier for advisers, it is simply that we must not get to a point where the requirements for data and personal information leads people to reject financial advice as too much of a hassle.

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