Wealth managers aim to attract a broader range of UK customers with inexpensive, online financial advice services that break the mould in an industry traditionally focused on a well-heeled slice of the population.
Vanguard, the US fund group, imported a version of its low-cost financial advice product to the UK in April, but British names including Charles Stanley, M&G Wealth and Tilney Smith & Williamson are also jumping into the market with stripped down advice offerings delivered using a hybrid of online tools and personal consultations, often via video call.
The pandemic has forced wealth managers to adopt Zoom calls and other tech in their day-to-day business, while lockdown savings have flooded the investment industry with new potential customers. Wealth managers are embracing online hybrid systems to offer cheaper financial advice to consumers, in the hope of attracting new business by lowering barriers to entry.
“We saw a lot of barriers to dealing with people digitally disappear,” says John Porteous, managing director of central financial services at Charles Stanley.
The wealth industry has been criticised for decades over the “advice gap” that leaves consumers with too little wealth unable to access financial advice. Only 8 per cent of UK adults take formal financial advice, according to the Financial Conduct Authority.
Robo advisers have tried to bridge the gap with affordable online platforms to guide investing decisions. These services have grown to capture a 19 per cent share of customers in the direct-to-consumer investment market but only account for 3 per cent of assets.
Do-it-yourself online investing platforms, such as Hargreaves Lansdown, have also attracted investors who are locked out of wealth management. But a large swath of clients lack the confidence to make investment decisions by themselves or are wary of financial commitments based on a purely digital process.
Some robos have dabbled with adding human contact to their processes, but many of these companies have struggled to become profitable given the high cost of attracting new customers. One of the largest robo advisers, Nutmeg, was lined up last week to be sold to JPMorgan Chase, while several smaller rivals have closed or exited the UK market. Larger companies with established client bases are trying to build on the robo adviser model.
Porteous says the rapid growth of digital and direct-to-consumer investment markets during the pandemic encouraged Charles Stanley to start rolling out its new hybrid advice offering in February. For one-time fees ranging in the hundreds of pounds, customers access an online module covering a particular financial topic, such as inheritance or retirement planning, and can talk to a financial adviser over a video call.
While the investment industry produces a vast array of educational content and guidance online, Charles Stanley and other hybrid providers are offering regulated financial advice. The traditional pricing model for advice and wealth management imposes an annual fee on clients’ assets and sets a minimum threshold of about £100,000 and £250,000 in investable funds.
“What do firms offer those clients who don’t have £100,000 or £250,000?” says Porteous, who hopes to appeal to potential clients with less cash to invest, many of them under 50. He says inexpensive, online advice could be a first point of contact for customers who might use more wealth services in the future. “We see it as a fantastic way of incubating the next generation of full-service clients,” he says.
“It’s a lot cheaper for us to make an impression on our clients with this service than it is to fish in that very competitive pool of 55-year-olds with £1m,” Porteous adds.
Vanguard has also undercut the average industry minimum with a £50,000 threshold for its advice service. But only clients investing more than £100,000 will be able to call a financial planner. It will charge an all-in annual fee on assets of 0.79 per cent. Vanguard’s service focuses on retirement planning and is based on an online tool that poses around 80 questions about customers’ goals and finances and churns out a personalised financial plan.
“We do think the UK advice market is very, very ready for more choice. There hasn’t been a lot of innovation,” says James Norton, Vanguard’s head of financial planners. The US company’s self-directed investing platform has taken on 280,000 clients since launching in the UK in 2017.
Brewin Dolphin, a wealth manager, has organised its services into four tiers, including a simplified online advice option. “By having a broad range of propositions and multiple distribution channels we are reaching a larger demographic of customers,” says Robin Beer, chief executive.
Research suggests a receptive audience for more high-tech options. Boring Money, a finance website, estimates the potential market for digital financial advice at 7m customers in the UK. Consumers have become much more willing to take financial advice online during the pandemic. Roughly half of investors now say they’d be comfortable receiving financial help on a video call, up from just 25 per cent in 2019, Boring Money found.
The majority of that target market are already DIY investors who want more help and reassurance making key financial decisions. Charles Stanley and Vanguard both see opportunities to offer advice services to their existing direct investment customers.
“The emergence of lower-cost, lower-touch advice models is a no-brainer,” says Holly Mackay, Boring Money chief executive. “We hear from many very affluent individuals who are questioning their need to pay an ongoing percentage fee over a period of years when their specific needs are relatively straightforward.”
Industry veterans defend the value of full-service advice for those with more complex finances. “There will always be that need for a traditional advice model,” says Jason Hollands, managing director at Tilney Smith & Williamson. “But certainly you can reach a much wider audience if you let the tech do a lot of the heavy lifting.”
Tilney’s Bestinvest investment platform plans to launch a hybrid advice proposition later this year. Hollands says digital advice is moving beyond the model of robo advisers, which typically aim to identify a portfolio that is broadly appropriate to a client’s risk and time horizons.
“The missing bit where the new generation of hybrid advisers can hopefully play is linking investments to your real world goals,” he says.
Not all advisers expanding into digital services are focused on recruiting a younger generation of customers. M&G Wealth and Standard Life Aberdeen both offer hybrid advice for people heading into retirement with relatively straightforward needs, who wouldn’t meet the wealth threshold for traditional services.
“The crux of the challenge is to find the right points to put the human in and the right point to be digital. The more digital we can make it, the lower the cost for the customer,” says Richard Caldicott, deputy chief executive of M&G Wealth.
“Older customers are much more tech savvy than we give them credit for. The pandemic has certainly accelerated that. They are on Zoom with the kids and the grandchildren,” he says.