The financial advice market has changed dramatically over the last decade since the Retail Distribution Review (RDR).
The industry moved further towards older clients with bigger pension pots as it costs less to service them than younger clients with fewer assets.
According to research by independent consultants AKG, advisers will need a different business model if they want to attract the next generation of clients and future proof their business.
David Jones, head of UK and Ireland advisory group at Dimensional Fund Advisors, told International Adviser that some advice companies are actively working on developing a younger client base, while also continuing their focus on those closer to retirement.
More assets
One of the main reasons why advisers are often drawn to older clients is that they are more likely to have accumulated more assets – and they also are more inclined to seek advice about these, says Jones.
“The incentives to work with older clients are clear: they tend to have more assets, more complex needs and are more motivated to seek and take advice,” he added. “It’s natural for advisers to focus on them. Younger clients will have a longer-term payoff and any business thinking about long-term growth plans should consider how to provide services to them.
“Thankfully, we don’t only see older advisers looking after the older clients they grew up with. We’re working with a host of next gen advisers who are engaging with next gen clients. They are finding new ways to work with their generational peers, embracing the best principles of holistic financial planning, and packaging it in ways that engage younger clients.
“They don’t want to be transactional with their clients; they see the benefits of building long-term relationships with people rather than with their money.”
Strategy
Jones also assessed how firms should target next gen clients and what their strategy should be.
“We notice a shift in people’s priorities as they get older,” he said. “Under 40s seek progress towards their financial goals, while over 40s crave security and peace of mind.
“So, it makes sense for advisers who are looking to attract younger clients to appeal to their desire to plan for and reach financial goals. Younger DIY investors may be tinkering with their accounts with no firm goals in mind and no sense of progress towards them.
“A good adviser can get them on the right track from day one, helping them to understand the basics of financial planning and how quickly it can help them get a clear view of their financial future.”
Dimensional’s Jones also explained that the cost of change to business models to better target the younger generation as clients can be a challenge.
He added: “Cost, fees and how to offer a sustainable model to younger clients is a major factor. Even the largest financial services firms in the UK have hesitated about or struggled with offering a low-cost advice service to clients with fewer assets.
“But I think this is where tech can really start to make a difference in the years ahead. Robo and hybrid solutions have failed make their mark, but I can see AI developing to power a second generation of tools that make smaller accounts more viable.”
Lack of a savings culture
While Jones acknowledges there is room for improvement in the younger generation’s financial habits, he welcomes the use of contemporary channels of advice to enhance these.
Jones said: “My biggest concern with the younger generation is the lack of a savings culture and good finance habits. This is neither the individuals’ nor the industry’s fault – it’s a broader observation on the UK.
“I am pleased to see the emergence of influencers who are producing sensible content about budgeting and managing finances, rather than selling crypto.”
