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Today’s financial advice industry is primarily for people with money already. Tomorrow’s financial advice profession will be primarily for people facing financial complexities regardless of their money holdings.

Jim Stackpool

The reasons why people are motivated to pay for financial advice today will be very different from the reasons why they’ll pay and seek financial advice in the future.

Why you buy a new phone today is different from the reasons why you used to buy your phone.

We used to buy phones to make phone calls. We now buy phones to search the internet, to send text messages, to scan the news, to engage with friends, to listen to music, to take photos and share them with others, to play games, to check the traffic or the weather, to buy stuff and, of course, to make calls.

So it is also in the fast emerging world of financial advice.

This is due to forces of competition, the ability of the internet to commoditise a service (Google traffic can now give us a more accurate assessment of the traffic snarls immediately ahead than the former “eye in the sky” based reports), and good old-fashioned entrepreneurial development of new services that challenge the modus operandi.

But most significantly, future reasons for purchasing financial advice will be underpinned by consumers demanding better value for money, better service, greater impartiality and transparency in their dealings with their financial advisers. Also, when compared with their predecessors, today’s mobile phones have not only changed how we use our phones, but they have also changed our behaviours.

Equally, thanks to the global financial crisis, consumers are changing their behaviours towards the purchase of financial advice – witness the growth of the self-managed super fund industry – in their bid to gain a greater sense of control of their own financial futures.

Self-help first

Consumers did not embrace the financial planning industry or accounting profession in large numbers as a first port of call when times got tough and financial uncertainty proliferated over the past few years. Instead, they attempted to become more self-reliant and turned to themselves. (And in keeping with its product-based heritage, the financial planning industry predictably is now headlong into responding to this trend in yet another product cycle by treating the provision of self-managed super funds as their latest “product” offerings.)

However, why consumers are now flocking towards self-managed superannuation funds isn’t for the fund itself, but something else. They are seeking a greater sense of being in control of their financial lives.

In the emerging world of financial advice, financial advisers won’t be engaged based upon what they’ll do for you, but why they’ll do what they do.

For instance, while there are exceptions, very few financial advisers would see the value today in advising a newly married couple about their long-term aspirations. Despite their enthusiasm and potential, newlyweds usually have little money, little experience, large dreams and a larger mortgage. While it’s still “common” for newly marrieds to go into significant debt to buy their first dream house, little value is placed on potentially going into more debt (relatively tiny compared to housing debt) to obtain appropriate financial advice to maximise their probability of achieving both long- and short-term financial aspirations.

Today’s financial advice industry is primarily for people with money already. Tomorrow’s financial advice profession will be primarily for people facing financial complexities regardless of their money holdings.

Broaden the base

Today’s common reason why consumers engage financial advisers has been about what an adviser can do with the money already accumulated, or how to manage for the tax that needs to be paid for the money already earned, or how to cover the risks of the estate or salaries already been earned.

This is the equivalent of having a fitness industry just for overweight people. The fitness industry is for all people who desire greater fitness. So too the future financial advice industry will evolve to serve those who just want greater certainty in their lives regardless if they are either have money (overweight) or don’t have money (underweight) in their money holdings.

The main criterion will be how the purchaser of the advice determines the value they are receiving to best overcome the financial complexities they are facing.

The future financial advice industry will only do this as it learns to engage people not based upon their current money holdings, but also upon their financial desires, wishes, aspirations, wants or desires. Just engaging future financial advice clients based upon their money holdings will be similar to just buying a mobile phone to only make phone calls.

Flawed product model

It’s not only newlyweds looking for greater financial certainty and someone to help them achieve it. It’s also middle-income earners hoping to start their own businesses. It’s also employees wondering how or when to best financially plan for their expanding family. It’s also retirees living on retirement incomes wanting to explore new opportunities or projects. It’s hard-working parents with kids still at home and ageing parents needing more support than is available in their old family home environment. It’s also the hard-working couple who want to downsize and shift to new opportunities.

Who do these people approach to help them solve these complexities?

Their financial planner? Their accountant?

Neither.

Consumers do not approach, generally, either of these groups. The majority of today’s financial planners and accountants do not have business models or proven approaches to help solve such complexities. Fundamentally, the reason why consumers will engage financial advisers in the future will be as diverse as the number of complexities (whether they be behavioural, technical, relationship-based or historical) that hinder them from clearly seeing how their financial aspirations will possibly come to fruition.

Today’s product-based model of financial planning advice is flawed. It has built an industry where advice is attached to a financial product (for example, a self-managed superannuation fund, risk, insurance, investment, tax structure, share purchase).

Consumers will demand better.

Needs-based advice

Consumers see the blame for the global financial crisis as essentially having been taken by very few, as hardly any firms or advisers have taken any recrimination in the courts.

They are increasingly wondering why are the gains and increased payments to advisers from times of market growth accredited to the same advisers who advised clients into products that lost money?

The reasons why advice will be purchased in the future will be vastly different from the reasons it was purchased in the past, as value that people seek shifts from the product supplied to the reasons why products might (or might not) be required.

 Jim Stackpool’s blog is at jimstackpool.com

This is an extract from Jim Stackpool’s latest book, “Seeking Certainty”, written for consumers of financial advice, due out early next year.

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