Emma Ann Hughes reflects on the key takeaways from the PFS’s Futureproof Conference, held in Birmingham
How to make sure your business is fighting fit so you can assist your clients no matter what the future holds, was the focus of the PFS’s Futureproof Conference.
Financial advisers gathered at the International Convention Centre (ICC) in Birmingham to hear from the Financial Conduct Authority (FCA), investment experts, government advisers and the PFS about what is on the horizon for the profession and clients.
Here are the five things we learned about what financial advisers need to do to be ready for the years ahead.
1. Get your structure right
In order to futureproof your advice business, Rory Percival, regulatory consultant, said you need to review the way you currently run your firm.
Speaking to a packed Hall One at the ICC in Birmingham, Mr Percival revealed he recently took part in a war of words on Twitter.
An adviser claimed the FCA should sit in client meetings more often to understand how the financial advice process actually works.
But Mr Percival, a former technical specialist at the City watchdog, said he disagreed that the regulator needs to sit in on client meetings.
He said: “I thought to myself – no. The only thing that becomes important at that stage is being clear, fair and not misleading. It is how the firm operates, before they get into the client meeting – that is the most important thing.
“While for you, sitting with the client is the big, important thing,I would argue that it is what happens before that meeting in terms of firm governance that really matters.”
Mr Percival said it is vital that advice firms regularly review the way they work and question why they are operating in this way.
He said: “My view is most firms don’t do capacity for loss very well. Who in your firm is accountable for how you do capacity for loss? You need to have individual people who are accountable for pretty much everything you do in your firm. You are better as a firm if you have individuals who are accountable. When I am accountable for things,I make sure things happen.
“We have all heard about the Senior Managers & Certification Regime (SM&CR). A lot of what I have been talking about with accountability is coming in with the SM&CR, but I would suggest you expand that more broadly and ascribe responsibilities to all individuals across the firm.”
Mr Percival concluded that, to futureproof your advice business, you need to: “Think about your culture and your values. Build in challenge and manage biases within your firm.”
Become a client-centric business and that will help you be truly futureproofed- Debbie Gupta, FCA
2. Review your charges
Debbie Gupta, director of life insurance and financial advice at the FCA, said the regulator is concerned that while a fee for ongoing advice is good for business, “it may be of very little value to the client”.
Ms Gupta urged advisers gathered at the PFS conference to look at how they charge for their services.
She said: “I know this is an emotive subject. We don’t expect advisers to be a charity, but we do expect you to consider the conflicts that arise. Take charges on ongoing advice. Most advisers that we see are charging a percentage of client assets. This works well for clients building their wealth, but is it right for clients that are withdrawing their assets?”
Ms Gupta said the FCA would be worried if it was to see longstanding clients priced out of financial advice at the point when they may need it the most.
She said: “Think carefully about where you add value. Professional advice is valuable and increasingly necessary as our environment is evolving. We still see too many firms focusing on the solution they want to provide to the client.
“We want to see a mindset where you ask: what does the client really need and how can I help them achieve that? Become a client-centric business and that will help you be truly futureproofed.”
This is Facebook on steroids. You can now have a robo-adviser like one you have never had before- Matthew Griffin, 311 Institute
3. Change the conversation
Advisers gathered at the PFS’s Futureproof Conference were also encouraged to think about the way their clients expect them to talk about their investments.
For example, in the early days of environmental, social and governance investment, all the talk was about screening, engagement with senior management and monitoring whether companies were hitting sustainability targets.
Belinda Gan, product manager of global sustainability of Schroders, said this was because this had been the focus of institutional investors who were first to engage with environmental, social and governance investment.
Ms Gan said while institutions still want to know about exclusions, screenings and such like, for financial advisers and retail investors it is less about being bombarded with acronyms and more about bringing it back to the real world.
Iain Richards, head of responsible investment for Columbia Threadneedle, agreed that disclosure from investment houses in this area needs to change so that advisers can connect their clients’ views with a suitable fund that is in keeping with their beliefs.
Mr Richards said: “People have not got their heads round how to connect the underlying client’s interest with the information that clients want. Platforms want case studies and stories, not just the technical story. The retail investor wants to see that it (the fund) is real and doing something meaningful.”
4. Advice beyond the grave
While it may have taken 75 years to get 50 million people to acquire a telephone, it took Pokemon Go just 19 days to achieve that same level of engagement.
Advisers gathered at the PFS conference were told connectivity and digitalisation will accelerate the pace of disruption even more in the future – to days and then hours and minutes.
Every industry, directly or indirectly, is linked to every other industry, meaning seismic shifts in one eventually ripple across them all, creating an accelerating, virtuous cycle of limitless disruption, warned Matthew Griffin, CEO of global futures and deep futures consultancy 311 Institute.
Reflecting on what this could mean for the future shape of the financial advice profession, Mr Griffin, who has worked with all G20 governments, said robo-advice in its current state should not be feared by human financial advisers.
He said: “The FCA is starting to clamp down on robo-advisers. A lot of them are just black boxes and we don’t know how they work.”
But Mr Griffin said advisers need to be aware that human-centric interfaces are emerging and a future challenge or opportunity for the profession is the creation of an AI replica of a human financial adviser.
Technology is working to replicate minds and thought patterns – so in the not-too-distant future, an AI version of you could be advising clients even long after you have died, said Mr Griffin.
He added: “Digital humans with neural network brains have arrived. This is Facebook on steroids. You can now have a robo-adviser like one you have never had before.”
Mr Griffin said the emergence of new automation technologies, from avatars to robo-advisers, means that in the next couple of decades, being human would increasingly be a differentiator for clients.
He said: “People want to ask: ‘Why are you giving me that advice?’ At the moment, the AI can only say: ‘That is my advice.’ It doesn’t allow for the questioning of the advice.
“Your clients need you more – not less – because as the rate of change accelerates, people want human beings to make sense of it for them.”
5. The future is bright – the future is advice
Ultimately, the key takeaway message that ran through this year’s PFS Futureproof Conference is that the future is bright for financial advice, as long as you are equipped and are preparing your clients for the ever faster-changing world.
Keith Richards, chief executive of the PFS, said for the long-term future prosperity of the profession, it is vital that advisers show their value to the wider public.
He urged advisers gathered in Birmingham to engage in pro bono initiatives such as Moneyplan,
Forces Moneyplan and My Personal Finance Skills.
My Personal Finance Skills delivers financial education and awareness workshops to schools across the UK. Thanks to financial advisers who signed up to be ambassadors, more than 250 sessions will be delivered to 7,500 pupils this academic year.
But for the 2020 to 2021 academic year, the scheme will reach even more pupils, as 500 sessions have already been arranged.
Mr Richards said: “We need to engage the public in the importance of financial planning in facing the challenges ahead. Many experts predicted the near-extinction of regulated advice due to the Retail Distribution Review. How wrong they all were. Adviser numbers have increased.
“Advisers have the power to change lives and collectively the profession has the power to shape the future. The PFS aims to be your compass.”
As chair of the conference, Claer Barrett, editor of FT Money, said the future is bright as the need for human financial advice is greater than ever.
She said: “We know we need to invest in advice. We don’t want to do it by ourselves. AI is a solution to filling the advice gap for the mass market but how do I feel about talking to a chatbot? Whenever I buy something on the internet and something goes wrong, I don’t want to talk to a chatbot – I want to talk to someone who will listen to me and my needs.
“More than ever we need an advisory profession that can help us make the right choice.”
Emma Ann Hughes is communications director of the PFS