Financial advisers are focused on the need to change their business models if they are to attract the next generation of clients, a research paper from independent consultants AKG has found.
The paper ‘NextGen or LostGen? – The need to develop new client acquisition strategies’, found 91% of advisers recognise the need to develop different types of service and fee models in order to work with different client age groups and segments, while also making use of new technology.
Around half (50%) identified the cost-of-living crisis as the biggest barrier to change, but 49% pointed to the impact of cost margins on their firm. Regulation (47%), developing new service/fee models to accommodate new clients (47%) and the length of time needed to make new clients profitable (41%) were also seen as key issues relating to new client acquisition.
Beyond the norm of targeting men and women with families, client segments that are seen as important for new business include business owners, specialist sectors such as doctors or the armed forces, young families and the spouses or partners of existing clients.
Matt Ward, communications director at AKG, said: “Although some firms may be comfortable with their focus on servicing existing clients, over the longer term those aware of the requirement to future-proof their client base and the value of their business will recognise the need to develop new client acquisition strategies.
“This will not necessarily be easy, and the situation is exacerbated currently by client wherewithal in the cost-of-living crisis and the perceived cost and regulatory issues facing advice firms.
“Whilst expanding footprint via relationship development with wider family units will play a key role, firms will need to get creative with their targeting, acquisition, and servicing strategies for the next generation of clients. This will inevitably require digital/technological support to create cost and process efficiencies but will also need a deeper understanding of future client requirements.”
Things need to change
The report also found that 16% feel they will need to develop digital servicing capability/functionality.
Some 35% said they will need to add a more transactional (upfront rather than ongoing) service/fee model, 14% believe they will need to add a charging model to attract families (such as offering some free services to next generation clients), and 26% added they will need to develop both digital servicing and new charging models.
AKG also found that seeking to identify which types of technology partner/solution can help to create the required client servicing cost efficiencies within firms.
Advisers surveyed saw roles for client relationship management systems (51%), back-office system providers (46%), open banking/finance apps (44%) and client portal/servicing apps (42%), and to some extent, platform operators (32%).
Duncan Muir, global industry lead of financial services at tech business Fluido, said: “The opportunity to adopt modern and innovative technology is here today, however, many aren’t aware or don’t have the roles in their business to define a route forward. There is too much reliance on providers developing new capabilities however there are too many conflicting demands on their table.
“Utilising technology to pick up the routine tasks and support front end elements of the advice process can reduce the cost to serve, manual intervention and enhance the experience of both user and client.
“All of these capabilities are accessible now and create the opportunity to increase capacity, reduce operating costs whilst not diminishing the invaluable services offered by advisers and meet the future expectations of clients in how they interact with their finances.”
Ever-changing savings habits
The report also surveyed Brits and found unsurprisingly, consumers are clearly concerned by the impact of inflation/cost-of-living (41%) on their lifestyle and finances.
Some 23% of those consumers were also concerned about their finances/money matters in general.
Matters relating to an inability to save adequately also featured among key consumer concerns, for example one-fifth (20%) of those surveyed were concerned about not having a ‘rainy-day’ savings fund to rely on. Also, 17% felt they are not saving enough for their retirement.
Despite current challenges, consumers evidently do recognise and are concerned about the need to save. Seeking to ascertain that if they are, or were to be, in a position to save money on a regular basis, which areas they would prioritise, the top purpose and priority selected was to generate a ‘rainy day’ fund to cover emergency costs/bills.
The paper said that any interaction with the financial services industry will “likely be impacted by these matters for the foreseeable, pointing out that this will create both challenge and opportunity for advisers and providers across the industry”, but should be acknowledged as “representing a fantastic chance to reassure, be helpful and show value”.
Gillian Hepburn, head of UK intermediary solutions at Schroders, added: “The low level of interest in investing as opposed to holding cash is a concern. Despite increasing interest rates, we also continue to live with rising inflation and there needs to be a greater understanding of the impact of this on savings.
“The regulator identified that some people are at risk of harm by holding high levels of cash and as an industry we therefore need to communicate the benefits of investing whilst understanding the range of products available and the relationship between risk and reward.”