In an era marked by swift change, financial intermediaries find themselves navigating a complex landscape fraught with challenges. From tightening regulations and economic turbulence to client attrition and the relentless pace of technological innovation, the stakes have never been higher.
“And in between all this ‘noise’, you as a financial intermediary need to try and navigate and position yourself to be successful,” says Gielie de Swardt, the head of Retail Partnerships at Alexforbes.
De Swardt recently spoke at the FIA Advice Summit 2024 held in Sandton on “Future proofing your advice practice”. Moonstone caught up with him afterwards to delve into the critical considerations independent intermediaries need to address to adapt their practices to meet future demands.
A good place to start, he suggests, is to ask the right questions.
How much is your time worth?
An analysis included in the Thomson Reuters Research Institute’s Cost of Compliance Report 2022 rates how much time is taken across business growth and client servicing activities or client-facing time versus compliance activities.
De Swardt emphasises that it’s not just about the numbers; it’s the underlying message that intermediaries need to grasp. Analysis shows that independent intermediaries spend only 35% of their time interacting with clients.
During a panel discussion at the summit, Wouter Snyman, the chief executive and founder of the attooh! group of companies, highlighted that to determine where intermediaries provide the most value, Adviser’s Alpha identifies two key components. The first is behavioural management, which accounts for the largest contribution to value, while the second centres on structuring tax advice and similar financial guidance.
De Swardt says that’s roughly two-thirds of the total value-add.
“But the point is, if your strength as an intermediary lies in face-to-face client interaction, you’re only spending 35% on average in front of clients.”
To enhance client-facing time, De Swardt suggests that intermediaries need to find a balance between client engagement and managing other essential tasks, such as ensuring efficient administrative processes, meeting compliance requirements, completing training, and improving planning functionality.
He encourages intermediaries to ask themselves which aspects of their work they can handle efficiently on their own or set up their businesses to manage independently. He says the answers may vary based on individual circumstances, including the practice’s maturity, size, and whether the intermediary is affiliated with a network or corporate entity.
Moreover, he highlights the value of partnerships, stating that if intermediaries feel overwhelmed, they should consider collaborating with companies or partners that can provide assistance.
“You need to start thinking about how to future-proof your practice by asking questions like: do I need to go at this alone? Or can I be more efficient by outsourcing? How are my providers helping me create efficiencies and scale my business?”
How are your clients changing?
De Swardt says a major international trend also playing out in South Africa is the wealth transfer from Baby Boomers to the next generation.
The NMG SA Retail Wealth Study 2023 looked at the proportion of intermediaries’ customers emigrating. It found that it was not the clients immigrating but their children.
“A lot of intermediaries will tell you that they don’t have a problem, claiming only 5% of their clients have emigrated. While it may be true that older clients are less inclined or unable to move, research shows that 66% of the heirs will likely leave the country. This poses a challenge for intermediaries trying to adapt their businesses to serve younger clients,” he says.
He says intermediaries need to consider if their businesses are set up to advise people immigrating and taking assets internationally.
He also points out the generational gap in communication and engagement preferences. For example, the top financial influencer (finfluencer) on Instagram boasts a following of 54 million.
“And with all due respect, a finfluencer is not necessarily the practised adviser. But the younger generation wants to engage with them, and they absorb information via those channels, and then they make their financial decisions.”
Another aspect to consider is the aging of intermediaries’ client base – a common trend in the industry. To stay relevant, attracting younger clients has become essential.
De Swardt notes that the client base of intermediaries seems to reflect the age of the financial adviser. The older the financial adviser, the older the client base that is serviced by that intermediary.
“How do you engage with the younger generation? Do you bring in younger financial planners, versus do you utilise technology? How do you do that?”
Are you ready for the techtonic revolution?
For decades now, technology has been considered both an opportunity and a threat when doing a SWOT analysis.
The KPMG report, The Future of Wealth Management 2022, examines the technologies organisations are adopting to enhance customer-centric operations. De Swardt emphasises the importance for intermediaries to assess their client engagement strategies and leverage technology for improved efficiency.
“Look at omnichannel capabilities: 67% of companies are engaged on their journey. About 21% have fully integrated, while 45% are still working on it. But it is not about the numbers. My question to intermediaries is, if you haven’t engaged in digital or technological advancement, you may find that by the time you decide to get involved, the market has moved so far ahead that the gap is too wide to bridge,” he warns.
He also notes that some advisers might dismiss technology, believing their client base isn’t engaged. However, as many seek to exit their practices through succession planning or selling their books, De Swardt asks, “How much do you think a book that incorporates technological advancements – where data is organised and clients are segmented – is worth compared to one that hasn’t adapted?”
“Even if you are not thinking broader than just the impact on your client base, if you think about the value of your practice, if you’re not looking at technology to be more efficient and sort out your data, you’re on the wrong track, because you are devaluing your own income generating asset,” he says.
He adds that while artificial intelligence (AI) is a hot topic, the real challenge lies in organising and extracting the most value from data.
“It’s all about the data. AI is a mechanism for you to utilise to extract data to be more efficient. It’s not about the tool itself. Yes, it brings efficiencies, but we believe that companies and advisers who have the best control and organisation of their data will be the winners.”
Holistic financial planning – a trend to watch
Trends listed in the World Economic Forum’s The Future of Financial Advice 2024 report include broadening to include financial well-being and needs-based financial planning.
De Swardt acknowledges that he, too, had to adjust his mindset to embrace this broader perspective, which includes a focus on financial well-being.
“When I started in the industry, holistic financial planning meant examining someone’s risk management, investment strategies, and perhaps short-term insurance and medical insurance needs, along with income protection. However, holistic financial planning is much more comprehensive than that,” he explains.
He says clients increasingly want to discuss financial topics that don’t necessarily tie to specific products or immediate needs. For example, they may ask questions like, “Should I buy a property or rent one? Do I really need a car, or can I use Uber or take the train?”
He says it has also become about the importance of taking care of your most valuable asset: yourself. “If you’re not healthy and don’t look after yourself, you’re eroding your biggest asset. This is where advisers need to broaden their thinking,” he says.
He notes that the introduction of the two-pot retirement system has significantly impacted the industry. Previously, there were distinct divisions between employee benefits and individual retail services. However, he says with the two-pot system driving the “retailisation” of the industry, these components can no longer be viewed in isolation.
He says for effective holistic financial planning, intermediaries must consider clients’ retirement assets alongside their pre-retirement or individual assets. The industry has historically approached these aspects from opposite ends, with advisers focusing solely on either employee benefits or individual clients. However, these boundaries are quickly blurring.
“If you’re an adviser who is not able to assist your clients with those type of discussions, someone else will,” says De Swardt.
He clarifies that it doesn’t mean everyone needs to adopt holistic financial planning practices overnight. “For example, you might still have individuals focused on short-term insurance practices, but those can plug into an individual financial planning practice by partnering with the right partners. In the end, your client is looking for a holistic experience.”
The massive advice gap
According to the FSCA’s 2023/24 integrated report, the number of authorised financial services providers (FSPs) rose from 11 740 in 2022/23 to 11 890 in 2023/24.
De Swardt observes while competition intensifies, everyone is still fishing in the same pond at the top end, focusing on wealthy clients. He believes there is an urgent need for solutions to address the unadvised portion of the industry.
“A recent comment by the CEO of a large insurer revealed that South Africa needed another 4 000 financial advisers to adequately service households. It also means that intermediaries need to implement meaningful advice models to adequately serve segments of the market effectively – the one-size approach will not necessarily work for all clients. Importantly, the financial planning approach stills needs to be robust irrespective of the market segment being serviced.”
He points out that a significant advice gap exists in South Africa – a large underserved segment of the market. A key factor contributing to this gap, he says, is the increasing expense of the financial planning process. De Swardt explains that intermediaries often cannot invest the same amount of time with younger clients who lack substantial investments or assets. He highlights that the effort and resources required for these clients simply do not justify the returns.
“The question then is, how do we transform the industry to fill that gap, because there’s a massive gap, and that’s the opportunity. How do you utilise technology? How do you partner with certain companies that can give you that reach?”
He says what is needed is a relook at current models to equip intermediaries to service a broader set of clients.
“So, it might not be a number of high-net-worth clients with very large investable assets, but there’s a big portion of the market that needs to be serviced that’s individually too small to service, but as a collective, too big to ignore.”
De Swardt says staying relevant in a constantly changing industry boils down to intermediaries asking themselves three critical questions: What am I doing? What should I be doing? What must I be doing?
He says there are essential tasks that cannot be overlooked, such as spending more time with clients, staying updated on tax structuring, and influencing client behaviours. However, he also notes that many of these responsibilities can be delegated or partnered out.
“It’s about efficiency. Make sure you focus on your strengths while partnering with others to complement your strengths in different areas.”
