Comparing adviser attitudes across South Africa and the UK
If you want to know more about how independent financial advisers (IFAs) are structuring their client propositions or thinking about their investment advice process, then you are at the right place. Today’s newsletter offers a summary of a summary, if you like, as your writer dives into a 90-minute webinar covering key insights from the recently published Allan Gray Adviser Barometer 2024-25.
The state of advice in the rainbow nation
Taryn Duncan, a manager in Adviser Proposition at Allan Gray, introduced the barometer as a detailed survey of 595 independent financial advisers (IFAs) giving advice in South Africa. The asset manager commissioned United Kingdom (UK) based consulting firm, lang cat, to conduct the research in light of their seven-year track record in producing the State of the Adviser Nation report, recognised as the largest independent survey of advisers and planners in the UK.
Mark Polson, chief executive and founder of lang cat, said the key differentiator in the State of the Adviser Nation report was its focus on advisers’ attitudes rather than their investment style or platform preferences. He said the report offered deep insights into how the world of advice firms was changing while exposing variances between firms in Australia, South Africa, the UK and the United States. Polson jokingly singled out financial sector regulation as one of the main exports from the UK to South Africa, conceding that the UK “sent an awful lot of it” our way.
“There are some fundamental differences between South Africa and the UK that I think are important to note,” said Duncan, who chose to use the stages of a client’s financial advice journey to frame the conversation. Kicking off with client acquisition, Duncan noted that South African financial advisers had far fewer affluent clients to chase after than their UK peers. The estimate is there are five times more taxpayers in the UK market, with many of those taxpayers sitting on significant sums of investible cash.
Referrals for the win
“Almost all client acquisition in the UK is referral based,” Polson said. The dominant trend in the UK market is for advice firms to grow in a steady, controlled fashion to offer new clients the bespoke service they had come to expect.
“The act of onboarding a client into what is often a full financial planning kind of experience involves quite a lot of work, and you cannot do it all day every day,” he said. Brands keen to grow more rapidly than referrals allow will often resort to buying qualified leads from a handful of providers in the UK market, though this approach has its frustrations. There is a two-speed market, with a handful of big brands pursuing more aggressive growth.
“This is not dissimilar to what we face in South Africa [where] most advisers are also growing fairly organically, mostly through word of mouth,” agreed Duncan, before exploring how UK advice firms were leveraging their websites. Polson was fairly critical of the online ‘shop window’ maintained by advisers in his market, saying they were ‘samey’ and lacking in character. He suggested that UK-based advisers spend more time giving a sense of who they are to stand apart from the crowd of 5500 advice firms and around 30000 advice givers. Restated: service is your edge in a marketplace where competing firms offer the same bundle of compliant financial products.
The first adviser-client interaction
The presenters agreed that the lack of attention to advice firms’ web portals was likely due to their operational models and resource constraints; firms were not resourced to chase after the additional leads that a successful marketing web presence would bring. Duncan shifted on to the next stage in the client journey, namely the first interaction between client and advice firm. Is the meeting in person or online? Who attends the meeting? And what other interesting nuances play out during the discovery meeting with clients?
It turns out there is a lot of variability in the UK market. According to Polson, more and more advisers are comfortable to engage remotely at first, though a face-to-face meeting is commonplace down the line. The first meeting usually takes place between client and advice giver or financial planner, free of charge. As an interesting aside, advisers in that market often avoid templates, preferring a ‘blank sheet’ approach to illustrate how open they are to clients’ aspirations, dreams and hopes. An emerging practise is to offer new clients the opportunity to self-serve their personal and financial data thereby improving onboarding completion.
Experience from the UK market suggests this use of technology in the pre-meeting phase contributes to a 90% success rate in converting meetings. “These are oftentimes quite emotional conversations,” explained Polson. “By the time you have served some data as well, whether you brought it with you or typed it in beforehand, the last thing you are going to want to do is go and do that again with three other advice firms.” On the minus side, this means that clients seeking advice do not get a representative sample of the market offering.
Charging for client discovery meetings
The South Africa survey showed that more than half of IFAs do not charge a fee for the initial ‘discovery’ meeting, and they have no intention of changing that approach over the next five years. First timers in the UK have no such luck, with pretty much 100% of firms charging an initial fee. Polson said that an upfront planning fee of several thousand dollars (in the US) or around GBP2500 in the UK was typical, with many US and some UK firms also charging an implementation fee, to cover the cost of bringing the client’s assets across to the firm.
Duncan commented that South African advice firms usually charged a smaller initial fee percentage for wealthier clients. “When we speak about initial fees, we are talking about a percentage of assets that the platform provider is going to deduct and pay over to the advisor; but there is also a charging model where advisers will charge a fee for a plan,” she said. Fee for plan occurs in the UK too, but there are some tax regulations at play. In the UK, if advice is not linked to transacting regulated products, then you have to charge 20% VAT on it.
The conversation shifted to putting together client portfolios. Around 44% of South African IFAs use bespoke portfolios of funds to suit the client’s unique needs followed by 25% who use in-house model portfolios and 22% who outsource to discretionary fund managers (DFMs). “The idea of bespoke solutions is completely gone in the UK marketplace,” commented Polson. “We have a very strong focus on consistency of outcome, [and] the only way that we can do that is to standardise investment solutions.” The preference in the UK investment space has, therefore, trended towards risk-graded solutions with a heavy skew to DFMs or commoditised house funds.
Planning trumps return in the value stakes
And this begs the question: how are advisers articulating their value to clients in the context of the investment decisions being shipped out to third parties? “The client should be left with a sense that the value that the adviser has brought is in monitoring the plan and ensuring that everything is sticking within the parameters that were agreed in the first place,” Polson said. He noted that the annual or semi-annual review were touchpoints around the plan and not feedback sessions for investment performances. It turns out this value is easier to ‘sell’ in benign markets where portfolio returns hover in the 7% to 10% range.
Artificial intelligence (AI) cracked a mention, with Duncan asking how UK-based IFAs were using this emerging technology in client servicing. Polson said there were two major focuses. The first, was using generative AI to communicate with clients, fulfilling part of the value proposition offered by advice firms. “Much more interesting is the creation of review packs and suitability letters,” he said. Advancements in AI-backed solutions are proving ‘game changing’ in generating reports from complex data sets without human intervention. And the technology is already being deployed to scan adviser-client communications for signs of client-side impairment.
Exploring AI in voice
South African advisers are slower adopters, with only 9% having implemented an AI solution, many of which focus on transcribing and summarising meeting minutes, or assisting with emails. “Most people are sitting back at the moment, saying, I am interested [in AI], but have not taken steps towards it yet,” Duncan concluded.
Writer’s thoughts:
Looking at how advisers in other markets approach client acquisition, onboarding and portfolio structuring can offer useful clues for refining your processes. Which of these functions offers the greatest scope for improvement in your business? Please comment below, interact with us on X at @fanews_online or email us your thoughts [email protected].
