Many argue that adaptation is needed. Customers now expect certain levels of digital offering when it comes to their financial products, especially with the significant adoption of online banking. But what are the issues with taking on FinTech and why do financial advisers and traditional financial service providers need to adapt?
Turning intergenerational wealth into an opportunity
If you haven’t already focused on intergenerational wealth transfer, then you could be missing a golden opportunity. According to research by Kings Court Trust, estate administration experts, more than £5.5 trillion will be passed on to the next generation in the next 30 years. In the UK, IFAs are losing a lot of their assets under management (AUM) when a client dies, with 15% of practices losing more than 50% of their AUM as a result of intergenerational wealth transfer in the last financial year. This isn’t a fringe case either, as 34% of practices also reported losing 20% or more. This shortfall marks a sizeable opportunity for both asset retention after death and for the acquisition of new wealth.
For many financial advisers, part of the solution is to take on potential inheritors as clients, regardless of their profitability. In doing this, they hope to build brand loyalty and make the handing over of assets a more seamless process. As this comes at a cost to the financial adviser, they may struggle to provide their service to the standard they hold themselves to. Similarly, inheritors may be expecting a multi-channel offering and having a single face-to-face meeting each year, or a letter through the door, may not provide the experience required to maintain brand loyalty.
But balancing current profitability against future potential is a hard battle to win, and one that many financial advisers struggle with.
How many clients are unprofitable?
Wealthify, a multiple-award-winning robo-investing service, surveyed more than 515 financial advisers to find out how many serviced clients who were not commercially viable. The numbers were staggering. Only 9% of all financial advisers asked believed they didn’t have any unprofitable clients on their books, while 6% said they currently had 100 or more. The majority (74%) held between 1 and 50 non-commercially viable clients.
The simple fact is that every unprofitable client costs a financial adviser in both time and money. But understanding the limit a client needs to reach to become profitable can be tricky. Research carried out by SimplyBiz, a leading provider of compliance support and business consultancy to financial services, looked into how much a client needs to have managed for them to be profitable using average figures from data across their members provided some interesting findings.
According to SimplyBiz data, onboarding typically takes 11.5 hours which, if charged at the average rate of £150 per hour, means that this piece of work should cost £1,716. This means if you charge a 3% fee, your client needs to have at least £57,200. SimplyBiz also found that ongoing work typically takes just shy of six hours a year, meaning financial advisers would need to charge at least £858 per annum to cover costs. Assuming the financial adviser is applying an average competitive rate of 0.75%, the client would need at least £114,400 invested to be profitable.
Based on these numbers, many smaller value clients fall into the non-commercially viable category. While keeping them on the books to assist with intergenerational wealth transfer may be appealing, without effective management to help them reach the profitability baseline, they can quickly become additional admin work that eats into profits.
Leaning into FinTech for smaller clients
Instead of seeing Fintech as a competitor, traditional financial providers could look at how to use products such as robo-investing to reduce their workload and make their offering more relevant and competitive in this evolving market. As technology progresses, people are placing greater importance on having a multi-channel service. That means not simply placating them with an annual face-to-face meeting and a telephone number, but also offering best-inclass digital solutions.
However, for many financial advisers, traditional banks and building societies, these solutions can be expensive to develop and timeconsuming to implement. Embracing opportunity and technology doesn’t need to be a costly endeavour, and it should be open to financial services of all sizes.
Introducing Wealthify as a service
Why go head to head against FinTech when you could work with them to bolster your service and lessen your workload? Multi-award-winning online investment provider, Wealthify, has created a white label solution that allows financial advisers, traditional banks, building societies, and other financial service providers to enter this market quickly, and at no cost.
Understanding that the biggest obstacle for many businesses to digital adaptation is cost and expertise, Wealthify as a Service can be provided to a business for free or even as an additional revenue stream. This means that businesses can have access to a tried and tested service used by thousands of customers without having to increase their spend on research and development.
By working with Wealthify in this way, it could open the door for attracting digitally savvy clients, while boosting brand presence by using a white labelled or co-branded solution. This potential not only makes it easier to build up a pipeline of smaller, prospective clients who are not yet profitable, but could be an important instrument in engaging the next generations.
Click here to access the full UK WealthTech Landscape Report 2020.
