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Review of financial advice in 2020

Industry players weigh in on the year that will be remembered ‘for its impact on people’s wealth’


The year 2020 has been one to forget with the covid-19 virus, lockdowns, market volatility and economic instability.

All of the above have put the financial advice sector under pressure over the past 12 months.

From quickly shifting away from the traditional face-to-face system towards a technological communication to an increasing use of e-signatures, online documents and cloud tech; financial advisers were forced to change their practices virtually overnight.

Reassuring clients during such tough months has also proven that financial advice is not just about money. Building and maintaining a relationship of trust is just as detrimental as is sound financial planning.

The development of the so called ‘soft skills’ has probably been just as influential in the retention and attraction of both existing and future clients during this past year.

To understand what the financial advice sector has gone through in the year of covid-19, quarantines and lockdowns, International Adviser spoke with industry players about their takeaways from a rocky 2020.

Away from traditional

Keith Richards, chief executive of the Personal Finance Society, said: “2020 presented many new and unexpected challenges for society and the financial advice profession. Forced away from the usual practice of face-to-face interaction has meant firms and advisers have had to be quick to innovate, both for corporate and client continuity of service perspective.

“It has been amazing to see an intergenerational technology gap bridged, as grandparents are now using the same technology and apps as their grandchildren – for financial planning this could be a significant game changer and an opportunity for wider intergenerational engagement and reach.

“Video conferencing has of course become the normal in 2020, whether to maintain social contact or to conduct work, it is likely be a permanent part of our lives, supporting remote working and potentially increased access to professional services as we continue living a more virtual life.

“Planning for the bad times is important because bad times do come. Simple things like having the right kind of life insurance against the known risks in life, is of course further emphasised by the unexpected. Equally, understanding what we have to do in volatile investment markets and having control over our spending have been proved key for financial resilience.”

Alexandra Foster, director, insurance, wealth management and financial services at BT, agrees with PFS’ Richards: “The industry-wide move to remote working necessitated change, and firms that innovated and adopted new technology quickly in the early days of the pandemic positioned themselves well to make the most out of a difficult situation. The use of AI to augment human expertise will be a lasting legacy of the pandemic, with digitalisation improving on-boarding, KYC and anti-fraud processes all-around.”

A year to remember

Steven Cameron, pensions director at Aegon, said that, despite the coronavirus outbreak, 2020 was already set to be a tumultuous year especially for the UK, with Brexit on the horizon and several financial services policies pending.

He said: “Looking back on a year dominated by covid-19, 2020 will be long remembered for the impact not just on the nation’s health and daily life, but on individuals’ employment and wealth. The effects of coronavirus have prompted previously unimaginable interventions from the government and caused huge stock market volatility.

“Before the onset of the pandemic, 2020 was already scheduled to be a significant year with Brexit deals and transitions to be managed and a re-elected majority Conservative government ready to take forward its agenda including the Pension Schemes Bill. There were also a host of Financial Conduct Authority (FCA) interventions on the cards including the latest new rules on defined benefit transfers, investment pathways and in specie transfers between platforms.”

“As the huge implications of the pandemic became clear, it was essential to stop individuals making panic decisions with their investments as markets dropped. This showed the value advisers add to their clients. It was helpful that the FCA suspended a long list of regulatory developments to allow the industry to focus on what was most important and to support the most vulnerable of customers.

“Against a backdrop of huge market volatility, individuals entering drawdown without advice would find it particularly hard to envisage what income and security they wanted from the first five years of ‘retirement’. And while making in specie platform transfers easier is a welcome initiative, it will only benefit a minority of affected platform investors, meaning there were other more pressing priorities for platforms to focus on. Deferring these until February 2021 was the right thing to do and we’ll see how these bed in soon.

“Covid-19 also delayed the implementation (till October) of the latest range of FCA changes to defined benefit transfer advice rules, including the ban on contingent charging, the greater emphasis given to transferring into a workplace pension and the new form of abridged advice.

“These tighter rules coupled with ongoing challenges around professional indemnity insurance and a steady stream of firms giving up or losing permissions, could mean 2020 may be remembered as the year when the supply of defined benefit (DB) advice failed to keep up with demand.”

Tech, tech and more tech

Of course, there could be no looking back at the past 12 months without mentioning the role of technology.

Robert Edsell, chief technology officer at Money Trove, said: “Technology has once again proven to be at the heart of our decision making as individuals, businesses, communities and nations. Understanding how to effectively adopt new technology as part of your daily life or business process has meant the difference between winners and losers in the race back to normal.

“At Trove we’ve seen a big uptake by advisers and firms as they have seen us as the quickest route to achieving compliant, centralised document and records management and ensuring that their business can remain operational throughout the pandemic.

“With investment markets volatile but proving to be performing strongly it was more important than ever to maintain continued dialogue with clients, so their investments remain suitable.”

PI woes

According to Dave Chessell, UK distribution director at PortfolioMetrix, this year has also been the one where professional indemnity insurance – or the ability to afford it – made or broke financial advice companies.

He said: “Professional Indemnity (PI) insurance can be a significant expense to any business but it’s absolutely essential for financial advisers.

“During 2020 some PI providers started asking specific questions about agreements advisers have in place with investment providers and whether this ties in with the agreements the adviser has with their clients.

“For advisers who have fully reviewed their agreements and understand the risks that are in their business from those agreements, this is nothing to worry about.

“For advisers who are relying on agreements that have not been reviewed recently and who may be making assumptions about those agreements, now is the time to act as we expect this trend to continue in 2021.”

Chessell said that many advisers hold agreements based on ‘Agent as Client’, which exposes them to “any complaints from their clients about their investments and this may extend way into the future”.

“The investment manager is only accountable to the adviser, who, as a professional client, should be aware of what investments are being made and the subsequent risks attached to them.

“If you are an adviser without discretionary permissions and you operate with DFMs under Agent as Client agreements, there is a good chance you and your firm are at serious risk of being hit with compensation claims should something happen to make your clients question the investments in their model portfolio.

“If you apply for PI without first reviewing your situation and rely on trusting to luck then, if something should go wrong and a claim is made against you, your PI insurer will investigate, and you will discover you were not covered in the way you thought.

“It’s that serious.”

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