The end of one year and the start of another offers some quiet time to reflect on what could shape the future of advice and personal finance. Keep an eye on these five trends in the new year to protect and grow your business.
The global retirement gap is expected to reach $240 trillion in 2030, according to the EY NextWave Insurance: Life and insurance 2021 report. South Africa’s life and disability insurance gap grew to R34.3 trillion by the end of 2021, according to the 2022 Asisa Gap Study. The gap between what consumers need for financial well-being and what they have is widening.
With high unemployment and a rising cost of living many have affordability constraints and cannot save or insure as much as they would like. However, affordability is not the only reason for low savings and underinsurance. For example, the Asisa Gap Study found that the richest 20% who earn on average R713 428 per annum are underinsured for death by R2.1 million and disability by over R3.7 million.
Notable too is that the poor financial outcomes are being achieved in a world where consumers have access to all the tools and platforms they need to manage their investments and finances. Online platforms where you can invest in part-shares, shares, ETFs and unit trusts, crypto and many other options such as small business and property are readily available. It has become easy to DIY personal finances. The risk is that suitability and appropriateness are ignored. These options become a stab in the dark without knowledge of an individual’s goals and a financial needs analysis. How does a consumer know where, when and how much to invest? How do they know which amount and type of insurance will offer the protection they need? There is the extra risk of purchasing unsuitable products, costs incurred, and losses locked in when products are switched.
Consumers want financial well-being, they want to reduce the gaps. It is on the how that they stumble. The how is the expert area of the financial adviser, who can explain products, advise on appropriateness and help identify financial needs and ways to meet those needs.
Unfortunately, awareness of the services financial advisers offer and the value they add is low. For example, a DailyInvestor report found that many investors believe they don’t have enough assets to qualify for personal financial advice.
Befriend the trend: Market your services, emphasising the value you add to your clients and how you can help them achieve their financial goals. Build your brand, online and/or in social media and at networking events so clients know what you offer, why it is valuable, and can easily find you.
Miserable economic outlook and stagflation
That economic growth looks like it will be very hard to achieve in 2023 isn’t new. This negative outlook affects sentiment, confidence and budgets. There is more. It is possible that the interest rate increases implemented to curb inflation don’t work and we see stagflation – high inflation with economic stagnation.
Economist and author Nouriel Roubini believes stagflation is possible and thinks in the face of it, central banks will opt out of fighting inflation.
Befriend the trend: Be prepared if interest rates and/or inflation remain high. Work with clients to help them budget appropriately, always have affordability discussions when discussing products, and make sure your clients take inflation into account when insuring and investing. Review your business model and work on making your business resilient, such as by diversifying your client base, so that you can withstand difficult economic conditions. Partnering and merging with other practices may also be an option to consider to remain profitable.
A louder client voice
Guidance by financial advisers, who advise and educate clients on products and services is going to be even more critical in the years ahead. Good advice will ensure clients know what products they have, how and when they work.
Improvements in financial literacy are empowering consumers, who actively speak out when they feel they have not been treated fairly. Tough economic times can also add more voices to these complaints, demanding fair treatment and financial products that fulfill promises and deliver as expected. The 2021/2022 FAIS Ombud annual report showed a substantial 10.78% increase in complaints received, showing that clients are becoming more insistent on good service and speaking up when products and services do not deliver as expected.
In addition, COFI (Conduct of Financial Institutions), which is making its way through the legislative process, places more emphasis on clients, aiming to ensure they are fairly treated and that the financial sector is more inclusive.
Befriend the trend: Keep it compliant, keep it client friendly. Act and advise in the best interests of the client. Never assume a client, new, returning, or existing, knows the important details of their product. Always fully disclose, record the disclosure on a record of advice and ensure your clients understand the terms and conditions. And always follow the Code of Conduct and TCF principles.
It’s a personal future
The Truth & BrandMapp 2022 Loyalty White Paper found that the loyalty programmes South Africans said they couldn’t live without in 2022 were those that offered personal, tailored services and rewards. Personalisation works, and clients love it! The Deloitte 2023 Insurance Outlook noted that client-centric companies will be successful businesses in the future.
In addition, younger clients, who spend a lot of time online and are set to inherit substantial amounts in the future, want personal advice that is relevant to them. As only an estimated 13% are expected to use their parents’ advisers when they inherit, according to a Wealth Mosaic report, connecting with them by offering personal, tailored services is a must. The days of a blanket” send to all” will no longer yield as many rewards and benefits as a personalised message!
Befriend the trend: Be prepared to take a more personal approach with clients to offer something more than what is available online. Get to know your clients and use your CRM system and other tech to personalise your communication and interactions with your clients.
Be aware of: Privacy concerns. With Ransomware incidents increasing by 235% in 2021 according to Deloitte, your systems, processes and data must be protected.
Tech up and benefit
Technology has given us many ways to deal with challenges and operate in new markets. There are some challenges ahead, but also many, many opportunities to work with clients, build good, lasting relationships, and offer unique and much-needed services.