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Where do you add value to clients

06 November 2018 Jonathan Faurie
Anne Cabot-Alletzhauser, Head of the Alexander Forbes Research Institute

Anne Cabot-Alletzhauser, Head of the Alexander Forbes Research Institute

There will always be a place for the adviser in the financial services industry as technology will create more external noise than it will offer transparent options to investors.

But how can advisers add more value to clients? It is becoming evident that they cannot do business in the same way that they have done in the past; clients demand innovation. 

The starting point

Speaking at the 2018 Morningstar Adviser Forum, Anne Cabot-Alletzhauser, Head of the Alexander Forbes Research Institute, said that South Africa has a flawed model for retirement savings. 

"Retirement, as we know it, needs a complete rethink. Financial advice is now required for a much broader demographic and if we don’t understand where we truly add value as financial advisers, we will fail our clients," said Cabot-Alletzhauser. 

Bearing in mind the unique challenges that the South African public faces when it comes to retirement, financial advisers need to approach the topic of retirement from a completely different angle. 

“In the past, retirement planning was centred on an individual and their immediate family, a wife two and a half kids. However, South Africans saving for retirement have to consider other aspects such as supporting additional family members, paying school fees for a brother or sister, helping to support a niece or nephew and possible the parents of a wife or husband,” said Cabot-Alletzhauser. 

Where do advisers add value?

Cabot-Alletzhauser pointed out that it is becoming critical for advisers to reassess their business models and ask where and how they currently add value to clients. 

“Do advisers add value by offering tax-efficient withdrawal sourcing? Do advisers add value by offering advice on risk capacity which is driven total wealth allocation? Or do advisers add value when it comes to dynamic withdrawal allocations? These are critical questions which need to be answered,” said Cabot-Alletzhauser. 

Where should the focus be?

According to Cabot-Alletzhauser, advisers should be focusing less on helping clients plan for their retirement and focus more on planning for life. 

Advisers have been hearing messages that they need to start focusing on a return on life (ROL) approach rather than a return on investment approach. Some may want to make this change but are not completely sure how to do it. 

“Moving towards an ROL approach is simpler than many advisers may think.  Advisers and fund managers should translate their compulsory savings programmes into a guided financial planning framework for individuals. This is the best approach to follow when beginning the process,” said Cabot-Alletzhauser. 

Advisers will also have to be on their toes when it comes to focusing their attention on a ROL approach. In most countries, financial advisers are able to establish an average or a median when it comes to providing advice because their client base will be made up of a specific demographic. This is a challenge in South Africa. 

“The problem with South Africa is that the country’s population is so culturally diverse that it is almost impossible to establish an average or a median. Conventional models simply do not apply effectively,” said Cabot-Alletzhauser. 

Lessons learned

To adjust to the new normal, Cabot-Alletzhauser pointed out that advisers need to think differently and learn some lessons along the way. 

"The first lesson that can be of value is that an adviser should never insist on compulsory long-term savings without combining it with a short-term emergency savings vehicle," said Cabot-Alletzhauser. 

She added that the second lesson advisers need to learn is that technological advances now mean we can algorithmically solve every funding requirement in a far more precise way. 

“There are some basic requirements to achieving this. Three building blocks are needed. These are growth, capital protection, income and the allocation algorithm. The other key aspect is the funding requirement. This includes cash flow (in and out of the client’s portfolio), a suitable time frame, and a degree of certainty required for hitting the target,” said Cabot-Alletzhauser. 

"The final lesson that advisers need to learn is that solving for retirement in South Africa demands a completely different insight as to what is needed. Once again, technology can help advisers make that critical transition," said Cabot-Alletzhauser.

 Key challenges

Cabot-Alletzhauser set the scene of what is expected from advisers when it comes to planning for retirement in the future. However, there is a final piece to this puzzle. 

Advisers need to appreciate and understand the challenges that face them. Some of these were pointed out earlier, but Cabot-Alletzhauser says that there are other key challenges that need to be addressed. 

“Neither social security nor a 75% replacement ratio for retirement savings solves the problems of care for the elderly in South Africa. Currently, 74% of South Africans live in multigenerational households. This puts a lot of pressure on family members who have stable jobs and those who are entering into the job market. They often become part of the sandwich generation or are expected to pay for the education of younger generations,” said Cabot-Alletzhauser. 

Editor’s Thoughts:
The rules of the retirement savings game have changed, and advisers need to change their ways with it. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

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