It’s one of the most frequently discussed topics within the financial advice community. With so many people caught up in the so called ‘advice gap’ the need for the sector to finally get its act together and start to deliver on this front has never been more pressing. But how could it happen?
At her #Intergen2020 session today entitled ‘own it: helping young people to invest their way to a better future’, not only did Iona Bain outline some of the challenges in the way of achieving this but also some practical considerations that advisers could use to improve their success in this key area.
Clearly there are problems due to the cost of a traditional financial planning service but a lack of awareness also contributes to what Bain called the ‘wild west’ of the finance world. This includes the modern phenomena of the millennial investing boom which has been so clearly visible this year and which is a big worry to many. With mobile trading apps making it so easy for unsuspecting young people to start off with fantasy portfolios, get some confidence, compete in league tables and then commit to real money, it it’s not hard to see where the problems might lie. With 2020 seeing a big rise in debt levels amongst the younger generation, there has also been a big rise in investing via these platforms and investment/trading apps which now promote their brand so heavily and are targeted through social media.
Such actions can fuel habits of short-termism and activities more akin to gambling than to sensible long term investing. It also allows companies to target young investors into far more complex products such as forex and derivatives which is where they make their own money. It’s a trend which as Bain pointed out could, in future, become a disruptor to challenge the more established investment platforms such as Hargreaves Lansdown.
Top tips for advice firms
So what steps can advice firms take now to support the needs of younger clients?
On this front, Bain has many excellent suggestions. From avoiding talking about pensions as the starting conversation (short term needs matter too), through to understanding that the traditional approach of focusing on traditional goals can be really tricky for millennials. They will often struggle to formulate these long term goals in such a fast moving world. Some of the other ideas which resonated with me were around framing your service as coaching rather than advising, think more like a financial educator rather than product selling. Also to treat your existing clients as gateways to a younger audience – their offspring. Of course, there are sound business reasons for doing this as the chances of inheritance mean that the more they are involved at an early stage the more likely it is that the firm will retain the intergenerational account for the long term. But Bain had nice ideas around structuring a cost-effective service for younger family members to engage them directly now as well as inviting them to participate in review meetings for those of their older relatives.
It’s a problem which we’re a long way from solving. However, as financial planning and advice firms get their strategic planning for 2021 firmly underway, perhaps this is an area where more will heed Bain’s advice to pick up the mantle and start to address the issues in a constructive and appropriate way to introduce young people to the value of advice.
Iona Bain is the founder of the Young Money Blog, and author of the upcoming book, Own It!