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One of my favourite childhood movies was Crocodile Dundee.
You all know the premise, I’m sure. An American reporter goes to the Australian outback to meet an eccentric crocodile poacher (Mick Dundee) and invites him to New York City. Adventures ahoy!
The movie contained some excellent scenes, including the attempted mugging in NYC which featured the lines which inspired the title of this article. Approached by a teenage mugger with a switchblade, Mick calmly produces a large bowie knife and explains to his female companion, “That’s not a knife. THAT’s a knife.”
This also resulted in a brilliant parody in The Simpsons, with the classic line, “All right, you win. I can see you’ve played Knifey Spoony before!” But anyway, I digress.
There’s been a lot of talk in the trade press and from the regulator recently about the ‘advice gap’. According to some, the withdrawal of a mass market advice service since RDR was introduced has resulted in a widening of the advice gap.
Mass market advice is shrinking, and will continue to shrink, for a number of reasons. The banks seemingly no longer want to play in this space. Well, they want to play in this space as it used to be quite profitable for them to flog investment products to their banking customers, but regular fines and higher professional standards are clearly making it seem less attractive than it once was.
In the IFA space, mass market clients were never really profitable. Plenty of IFAs dealt with them, because the ability to cross-subsidise the cost of a ‘free’ service to lower value clients with eye-watering commissions from higher value clients made this somehow alright. The RDR and adviser charging is quickly bringing this to an end, as well as the growing realisation among clients that a) nothing in life is free, and b) paying a percentage of your assets to buy a product probably doesn’t represent very good value.
So, if we accept that there is a growing advice gap as a result of the withdrawal of mass market services, is this is problem? I want to argue it is not.
That is because it is wrong to call this phenomenon an advice gap. It’s really a sales gap.
The banks were not advising their customers, but instead selling them (often unsuitable) products. IFAs working in this space were delivering some advice to mass market clients, but the service was primarily about product sales, with free ‘advice’ used as a way to sell a product which generated commission.
Closing a sales gap requires different actions to closing an advice gap. There is no advice gap because every IFA I know has the capacity to deal with more advised clients; at least those clients who need, want and would value professional advice. Mass market clients do not, in the main, fall into this category; particularly mass market clients in the wealth accumulation stage of their lives.
The sales gap can be closed with a combination of information services – such as the badly named Money Advice Service – and online services for execution of products. We don’t need highly qualified, expensive and sometimes non-compliant advisers to sell products.
But, as I alluded to with the title of this article, there is an advice gap coming – and it’s going to hit us like a juggernaut on steroids.
Over the next twenty years or so, a lot of people are going to reach retirement age. The post-war ‘baby boomer’ generation is starting to retire and the need for advice will be massive, like nothing you or I have ever experienced before.
This is the generation who hold most of the wealth in this country, around 80% of the nation’s £6.7trn of wealth according to one study. They were described earlier this year by the Bishop of London as the “fortunate generation”; experiencing dramatic improvements in living standards and receiving more than their fair share of taxpayer money.
According to the ONS, there will be 16.1m in the UK of pensionable age by 2037, compared to 12.3m in 2012. The baby boomers are coming.
And these people are, generally, in need of professional advice. They need help with their retirement income, care fees planning, inheritance tax and managing their investment assets.They are getting divorced in rapidly growing numbers. They haven’t typically needed to plan ahead or consider in detail their Financial Plans.
I’m not particularly hopeful about the prospects for baby boomer wealth cascading down to future generations; it will either be spent during retirement or spent by the eventual beneficiary on clearing massive mortgage debt. But at least for the next twenty years or so, IFAs across the country will be in a position to work with more clients than they could shake a stick at who actually need, want and value their services.
This is why I’ve started making a feature-length documentary about Financial Planning and the Baby Boomer generation. Boom! is on track to be released next autumn, hopefully with a first screening at the IFP or PFS Conference.
It’s exciting to consider the possibilities for an advice business over the coming years. Get your house in order today; disengage with inappropriate clients, up-skill to work with baby boomers and hone your proposition. The real advice gap is arriving very soon, and we need your help to fill it.