Peter Hewett CFP®, Managing Director, Hewett Wealth
It is amazing how everyone has suddenly become a “specialist physician” or “virologist” since the advent of Covid 19, with an uncanny ability to provide insight into the longer-term impact of the pandemic on matters such as financial markets and human behaviour… – the truth of the matter, however, is that we know very little about this virus and have an extremely limited actual understanding of its longer term impact….
One thing we do know is that it causes significant fear and uncertainty and that it has elicited unprecedented government intervention in relation to financial markets and personal freedoms.
With this in mind, it is critical to re-evaluate your business strategy and value proposition in the coming months and years to ensure that you and your financial services practice is future-fit and can endure sustained downturns and still remain relevant.
On the business strategy front, it is crucial that financial advisory and planning practices start reducing their reliance on upfront fees and commissions, primarily in the form of risk commissions. This can be achieved through amending their distribution agreements to allow for the gradual conversion from upfront to ongoing revenues, which is possible with almost all product providers. Another means of achieving this is to expand their value proposition to include a wider range of products and services such as short-term insurance and medical aid and to focus on building an investment book, all of which normally generate sustainable recurring revenues.
Another area that requires significant attention is the implementation of effective IT systems that enable the efficient management of the business and ongoing interaction with clients, even where this must be achieved remotely. Interestingly, this is not necessarily only to protect the business against future lockdowns or other business interruptions but to provide practices with flexibility in terms of expansion. The utilisation of technology during the pandemic has taught us that it is not always necessary to have large “bricks and mortar” infrastructures and it has also become clear that many clients are more than happy with reduced face to face contact in lieu of enhanced electronic reporting and feedback. These changes provide an opportunity to generate significant savings, which in turn will make the business more competitive and more able to withstand future economic downturns.
Turning to the impact of the pandemic on clients, it is striking to note how many clients (for the first time in many instances) are paying significant attention to their personal financial affairs, especially as it relates to risk mitigation and investment planning. The mass retrenchments, heightened fear of unplanned medical costs and the realisation that single events can collapse asset and equity markets has encouraged many clients to pay far more attention to their personal financial planning affairs, presenting an opportunity for all financial advisors to ensure that this proverbial “good crisis doesn’t go to waste”.
As an industry, we have the opportunity to ensure that clients are adequately protected from a medical and risk perspective, that they have adequate protection against a loss of income, that they have appropriately planned their business continuity etc. We also have the opportunity to objectively review their investment strategies to ensure that clients are making adequate provision for their retirement, that their investment portfolio is adequately diversified and that their longer-term plans are structurally sound – this is a huge opportunity right now!
None of us knows what the years ahead hold in store for us. With the resurgence and possible mutation of Covid 19 and the associated response from governments around the world and with the unprecedented injection of liquidity into world markets and the associated surge in debt, we are likely to experience continued uncertainty and market volatility.
We need to use this opportunity to add value to our clients and to our industry as a whole!