Some suggest that the Gamestop and Hargreaves Lansdown’s recent results foretell a collapse in demand for advice. ‘Younger people want to trade equities – they don’t want to pay 2% for a suit to manage their portfolio,’ they cry. That’s a reasonable conclusion but I’m still bullish about financial advice. Here’s why.
1.Trading equities isn’t investing
In my first job in financial services, c25 years ago (gulp!), a colleague was day trading mutual funds. Yep – he was trying to make money trading funds that price daily. He now has two kids, a house and an investment portfolio that he looks at infrequently. He dabbles in stocks – but the bulk of his money is invested for the long term. Past performance is no guarantee and all that, but I’d argue we’ve been here before.
2. Financial advice has never been mass market
Financial advisers tend to work with people with more wealth and more complex needs. When trusts, significant tax consequences or multiple jurisdictions are involved financial advisers can make a huge difference. You don’t need a financial adviser to do a £20k ISA investment. The value a financial adviser can add often grows with the complexity of the client’s needs.
3. Financial advisers won’t be blamed for today’s big losses
When I was a teenager, my parents invested in a property development scheme on the recommendation of a ‘financial adviser’. The scheme went bankrupt and my father swore never again to use a financial adviser. He didn’t tar financial services entirely but to this day he won’t use a financial adviser. I don’t think financial advisers will be blamed from trading losses incurred on D2C platforms.
What are the questions we should be asking ourselves?
1. How can we better engage investors?
Can we learn something from the engagement day-traders have with their portfolio to make investing more interactive. Robinhood has gone to great lengths to gamify trading. Can we allow investors interactive tools to look at themes or ESG criteria that underpin portfolios. How do we make them feel more involved in the process?
2. Is the product still relevant?
I come back to this regularly. Funds were invented coming up to 100 years ago and were a fantastic vehicle to democratise investing. Are they relevant today? Many financial planners have already separated the product from the plan. Asset managers need to challenge assumptions about their value proposition.
3. How advisers and asset managers attract younger investors?
Young people have an appetite to invest. Hargreaves Lansdown’s results were astonishing for many reasons. The stat that stood out most to me was the average age of a new customer fell from 45 to 37 in the past 10 years. These tech savvy investors want a digital interface. I believe they will want advice at some point. Will they turn to Hargreaves Lansdown for that advice? Maybe – it’s easier to retain a customer than find a new one and Hargreaves Lansdown employs an army of advisers ready to help when their customers need extra help. How can financial advice businesses and asset managers engage with this cohort of investors?
We are bullish about ongoing demand for financial advice. Financial advice business of tomorrow will look very different but they will continue to give confidence and a sense of financial wellbeing to their clients. We will continue to look at trends affecting investment propositions and advice businesses in 2021. In the meantime, I’m off to check the order status on my trading account.