We believe that financial advice has the power to deliver game-changing benefits to customers.
In our new research report, Feeling the benefit of financial advice, we've found that an adviser's services can help to improve the emotional wellbeing of customers, by making them feel better about their money - and themselves.
In this podcast we debate the key findings from our research with some industry experts and commentators. We also discuss how, in these challenging times, advisers have been finding ways to give their clients the extra emotional support they need.
Clare: Hello and welcome to our podcast. My name is Clare Moffat and I'm the Head of Intermediary Development and Technical at Royal London.
Today I'm delighted to be joined by three guests:
This week Royal London released some new customer research that further explores the value of financial advice. Our findings reveal that professional advice delivers more than just practical, financial benefits. Indeed we found it also helps to improve the emotional wellbeing of customers by helping them to feel better about themselves and their finances.
In this session we're going to dig into the key findings from our research - and how in these times of extreme volatility, uncertainty and social distancing, financial advisers have been finding ways to give their clients the extra emotional support they need.
As COVID 19 continues to disrupt our ways of working, we'd also like to discuss what lasting effects lockdown might have on our industry - and how the adviser/provider relationship may need to adapt and evolve in future.
If you'd like to read our full research report, you can download a copy from our website at adviser.royallondon.com/advicechangesthegame
But now on to the questions. So the first question for all of you.
What were the key findings from our customer research that resonated with you the most?
First of all, Tim.
Tim: I think in some ways the most interesting is how inextricably-linked financial and emotional wellbeing are and I think in some ways that's not surprising. But it's an incredibly important finding and it's often one that particularly in my world where policymakers or government are thinking about how people behave and how people interact, that they often forget because actually that feeling of reassurance is incredibly important to people.
And, actually, if you do the research, there are some really quite surprising findings.
So for example a lot of your research talked about peace of mind and not knowing where to start, and feeling uncertain about their future. Now one of the interesting things if you look at kind of psychological research - and there’s a very interesting book called Scarcity - is that kind of stress actually makes you less able to cope with other tasks and other processes.
So if you have those basic levels of stress, it makes it harder for you to achieve the other things that you want to do in your life. So these are very real, tangible benefits that will make a meaningful difference to people's lives.
Clare: Thanks Tim. Rob?
Rob: Yes I suppose I would echo really what Tim said in that I think it can be very easy for advisers to sometimes - particularly in the industry that I’m working - protection insurance, it can be very easy I think to sort of treat protection insurance as a commodity and the process we are taking that client through is little more than a sales process. And so I think there's a risk that advisers perhaps lose sight of the really important work they're doing in obviously helping consumers build that emotional mental wellbeing. And so absolutely I think it was it was really powerful to read in your research - actually dealing with an adviser can have a really positive impact. And that actually it's more than simply facilitating the sale for protection insurance product - it’s giving clients that peace of mind, it's helping with their emotional and mental wellbeing, and of course the work that we're doing is having some real impact in improving outcomes for consumers.
Clare: Thanks Rob and Paul?
Paul: Yeah. I mean first and foremost and certainly reading the report as an adviser my main word for summarising it would be reassuring to say the least. I think that the advisory community as a whole can take a great deal of comfort and confidence from this research. The results to me are conclusive; taking advice certainly delivers an enormous amount of value.
Clare: Thanks very much Paul.
So following on from that, you're speaking about this great value of the emotional benefit of financial advice. But Paul and Rob specifically for both of you- do you ever take the time to discuss the role that you can play in helping to support this mental wellbeing of your clients or talk about that part of it when you're thinking, when you're speaking to new clients?
First of all, Paul?
Paul: Yeah I mean it depends what particular clients and even Clare when I'm speaking to clients about our ongoing service and I must add - particularly the charge of that, I'm often referencing the fact that I am there to be a form of counsel, perhaps a soundboard to bounce ideas off and perhaps more importantly a safety net to avoid clients making bad decisions. You know we can be - to use a modern-day term - we can really be seen as a form of PT.
A personal trainer in a financial sense and making sure that our clients stick to their overall game plan and to use that term again, supporting them when they need it.
Clare: And Rob?
Rob: Yes it's an interesting point and I think in terms of us and our business, that kind of placing the emphasis on supporting the clients and their mental wellbeing I suppose, is something that we really place at the heart of what we do.
I think first of all it's, particularly for us, it’s really important in a competitive market.
Particularly one where a lot of consumers will increasingly turn to things like price comparison websites where they don't have any human interaction when it comes to actually procuring insurance and obviously that tends to be more common in the general insurance marketplace. I think it's really important that we can demonstrate to our clients the real value that we can add over say a non-advised or an automated service and how ultimately by speaking to us they'll end up better off.
Clare: That's great. Thanks Rob. And Tim we know that mental wellbeing is closely linked to financial wellbeing. So what can we be doing as an industry to further promote the value financial advice can deliver for clients in these areas?
Tim: Yes. So I think I there are a few areas there. I think it's a really good question and given my day job, I tend to naturally go towards you know what can we do to help government and policymakers understand that. And I think there's two kind of interesting, kind of addendums to this, about how we create the right regulation, the right policy.
The first is if you look at lots of the challenges about why people make bad financial decisions. There's been a lot of coverage of what people tend to call behavioural economics or nudges but using behavioural psychology to look at why people find it difficult to make good long term decisions. And none of these are factual, logical, numerical arguments. They are emotional arguments. They are about whether you can empathise with your future self, whether you over discount what value you will place on things in the future. And the way you overcome these heuristics, as they're called, is through an emotional conversation.
It's not through a logical conversation. People don't make decisions, by and large, on cold hard logic - they do so on an emotional basis. So if you have a policy environment, regulatory environment where you want people to make good decisions, then you are going to have to emotionally engage with them. And historically, some of the actions around advice and limitations of advice and regulation makes it harder for firms to have an emotional and meaningful conversation.
And when you look at things like say pension saving or other area this becomes really clear. Because people tend to talk about pensions as being complex and often they're not really that complex they are a tax-deferred saving vehicle. What's complex is people's lives. Should you give some money to your children? Should you go on a holiday vs keep saving? Again these are emotional questions. You have to engage with the human and you have to understand their psychological and emotional wellbeing.
A lot of the research that's been done on money in mental health has focused on debt. But actually at a time when we've just had a virus pandemic, people's savings, people's protection is an increasingly important part of their mental health and whether they feel prepared for any crisis. Those with significant savings I am imagining have felt much more confident through this period.
And then the final point I make for kind of policymakers is perhaps, slightly counterintuitively, this all becomes more important as technology develops. There's a really interesting expert on A.I. called Kai-Fu Lee who is a Chinese A.I. Investor. And he talks about understanding the future of work as what are machines good at and what are they bad at? And one of the things they are really bad at is emotional intelligence and empathy. And again as we use more algorithms, as we use more technology in the advice process, in the financial services process - the bit that those machines will not be able to do is the emotional element, the engaging with the human, the providing that additional support. So I think policymakers ignore this benefit of advice at their peril because increasingly I think it will play an absolutely critical role in getting the right outcomes for customers.
Clare: Thanks Tim.
So moving on, Paul and Rob so in the current climate we know that clients are feeling a lot more anxious about their future and many of advisers have seen an increase in demand for client contact. And our research shows that the three most commonly recognised emotional benefits of financial advice are feelings of control, confidence and peace of mind. How do you help to deliver these benefits to your clients and how have you had to change or adapt that because of the crisis that we're currently in.
So first of all to Rob.
Rob: Yes so good question and I think just tackling the second part there how do we change or adapt our approach in life. This crisis I mean for us as a business we're quite fortunate in that we are effectively, primarily telephone-based advisers and so in that sense the current crisis we find ourselves in hasn't really disrupted the way in which we engage and interact with our clients. But it has meant that I think we need to be conscious of kind of ramping up the extent to which we engage with, the extent to which we communicate, with our clients at this obviously quite challenging time.
I think in terms of control - this is a really important point for us and one that I recognise as being particularly important given the way that we operate as a business. You know we're not having face to face conversations with our clients and so I'm always very conscious of the fact that there can be a risk that clients feel as though they are perhaps are not as closely involved in the process. You can feel a little bit distant from your client over the telephone. So we work very hard to involve them in the processes from the very start and ensure that for example our fact find process is very much a two way conversation with the client involved.
By doing that obviously we're looking to build that long-term relationship with the client and seek to better understand them as a person their motivations what their goals in life are which then enables us obviously to provide better advice. And we can demonstrate to the client this isn't a sort of quick sales process where we're going to the end of it, we're going to sell them a product and that will be it, that’ll be the end of our relationship with them.
I think another really important thing here as well is education. Protection insurance is still something a lot of people don't understand and so I think for us a really important thing is educating our clients and that therefore enables them to feel more in control of things. So we put a lot of work into our consumer-facing content, we've got lots of education guides and things on our websites and we do a lot of work within the broader industry as well in terms of raising awareness, educating consumers on protection insurance, how the products work and this sort of stuff. So we do a lot of work as well on promoting some of our really high positive reviews. So again clients can feel confident that they're dealing with somebody who is an expert.
Clare: Thanks very much. And Paul?
Paul: Yeah I mean we know that the saying all too well that a picture paints a thousand words and that is one of the reasons I speak to my clients so passionately about cash flow modelling software. So it’s an integral part of our offering and to be able now to have the ability to physically show clients both their short term and their long term finances and this allows us really to get to the part that clients are truly interested in. You know we I think historically in the industry have bamboozled clients with focusing them on plan charges and performance against benchmark and all the other things that we speak as an industry. And that's not underestimating the importance of those things, but what financial planning for me is all about is getting back to clients aims, objectives and life goals.
Tim said it perfectly earlier on. I mean a pension is over complicated by many of us in the industry and consumers alike. And Tim is right - you know it is a pot of money. And our job should always be saying you know - What is it you want to achieve with that? What are the gaps? What are your goals? And how do we meet your long term aims and objectives?
And I think in my mind you know cash flow modelling is the exact tool to really show clients where they are.
I mean a particular example earlier in the year was a new client that came to us via
Unbiased. The referral looked something in the shape of - very concerned about COVID, my pension fund is down quite significantly and I did want to retire in the next couple of years. Took the enquiry on, spoke with this client, and built the whole consultation around cash flow modelling. To cut a long story short, the conclusion of that exercise was that the client sent me a lovely note saying that he had been losing an awful lot of sleep. And you talk about you know that the pleasurable parts of this job - I was able to reassure the client that if he really wanted to he could retire tomorrow.
Clare: Thanks Paul.
I think that is a crucial point that's been picked up and you know it is giving people that confidence that as you mentioned that person who wasn't sleeping so it’s having a real impact on their life. And actually having that discussion and going through the process of getting advice is improved what they think their finances are but also you know allowed them to sleep. So it's a real benefit.
Rob I wanted to ask you a question in particular. Thinking about the fact that we know that many clients in light of what's happened this year have come to appreciate how important it is to have a plan in place to prepare for life shocks, what sort of opportunities do you think this presents for advisers?
Rob: Yeah good question. I suppose without being crude about it this presents a massive opportunity for our industry.
This is obviously we're going through something that's completely unprecedented and that's going to have a huge impact on a huge number of people and I imagine that when eventually, hopefully at some point, things return to normal there won't be many people who won't have been touched by this in some way.
And so I think for our industry - particularly protection insurance industry and I think it's performed really well over the last few months and whilst there's areas that we can improve upon, you know I think we've done a huge amount of really good work for a huge number of people - both in terms of continuing to protect people at this really difficult time but also in paying out huge amounts in claims.
There's been a huge amount paid out in unfortunately in life insurance claims and income protection claims. So I think it's really important and something that we should be shouting about.
I think it's just really important that as an industry we take this opportunity to really hammer that message home that protection insurance is so important and that unfortunately not enough people are protected. And whilst in this unprecedented times, the government has been there to step in and protect a lot of people, you know it's not the case that that support is there for lots of people at any other time. And you know there's a risk I think that that it won't be there in future for people.
Clare: Thanks Rob.
Tim, I want to pick up a little bit more on this raised public interest in protection products.
So we've had many clients who’ve been feeling this urgent need to have some sort of safety net in place but there is a risk that they're going to buy a product that is not quite right for them or perhaps it doesn't offer what they think it does. So what can we be doing as an industry to help drive better standards of financial education with clients?
Tim: I think this is an absolutely critical point Clare and it's something I've worked on for many years and I was very proud to play a role in the campaign to have financial education added to the secondary school curriculum.
What the consumer really needs to know is when to ask for help and how to ask for help. And I think that's a really critical thing for the industry to be working with government, with people like the money in pension service - to make sure that people understand what they can do on their own, what is appropriate for them to think about and get on top of - whether that's budgeting skills, whether that some cash savings to protect them in a difficult scenario. But that where they have something complex – retirement, a mortgage, something like as you say protection insurance - it's okay and appropriate to ask for help and that we make that as simple and straightforward as we possibly can. So I think one of the challenges is that actually education can only go so far and what we need is a real clarity of message.
One of the things if you go back a few years to the financial advice market review. They did some work on rules of thumb, simple messages that you could deliver to people and actually they didn't feel that you could even say if you have some children you should have some life insurance, without getting, potentially stepping over the line to giving full regulated advice. And if we can't even deliver simple, straightforward messages to people about what scenarios they may want to think about, may want to engage in, we are going to have a real uphill struggle.
So I think again the industry needs to align behind efforts to ensure we can communicate clearly with individuals - what they should be doing, what are the no-brainers, what are the areas that they won't regret and then how can they get help rather than expecting them to have all the answers themselves. I mean that's why advisers go through so much time and effort to get the training to develop their expertise. We can't expect individuals to do that.
We just need to make sure they know, you know what in this circumstance -- this is who I call, this is where I can look, this is how I get the right answer. Because you're right - a lot of these people will have potentially taken out products for the first time and if they get the wrong product that unfortunately is going to shape their views of the industry and of protection more generally going forward.
Clare: That’s great, thanks very much Tim.
Paul we've seen some extremely volatile market conditions right now and as a result of that some pension clients will have seen a drop in the value of their pension savings and other investments. What sort of demand have you seen from your clients and have you been helping to give them extra emotional support?
Paul: Yeah I mean going back to earlier this year, a day we can all remember and kind of officially going into lockdown - and maybe in the lead up to that Clare - we really made it our top priority to proactively contact clients. For a few of our clients Clare we did just make an agreement to set up an adhoc review and just get together, whether it be in teams or whatever it took, to really you know input to the current situation, the revised values.
And I'm really delighted to say that on every occasion that we did this type of exercise, we again - referencing the point from earlier - restored lost confidence. And the fact we're able to kind of demonstrate that clients were still on plan and that we shouldn't be making any knee-jerk decisions, reactions - such as changing the current approach to investment for example, was really I felt and we'd got that feedback you know we were getting the feedback the clients were again reassured and happy and willing to continue with a great deal more peace of mind. You know, yes there's going to be volatility but if we've truly understood a client's attitude to risk, capacity for investment loss and of course the term that they want invest over, then I would hope and expect that a suitable portfolio recommendation has been made to complement these points. So yes, when volatility has come along or severe downturns like what we are experiencing just now or back to 2008, yes it is uncomfortable but it shouldn't change in theory the original advice that was given to that client as well.
Clare: And just a final question. Thinking about some of the areas we picked up on today. So a question for all of you, how do you see our day to day industry relationships evolving once we come through the other side of this crisis? Paul?
Paul: I think at any time there's always an opportunity to be more efficient and I do also think that the work life balance has, I’ve been talking about this for a long time now whether it be friends, family and I really do think that that particular issue has perhaps been out of sync for quite a while now. And this could certainly allow us for a form of reset if we use that term and certainly find new ways of working and perhaps a combination of both office and home working might be the new norm going forward as well. But in all honesty anything that can improve all of our mental wellbeing can only really be welcomed and embraced.
Rob: Undoubtedly it's going to push the need for advisers, insurance, everybody in the industry to think about utilising technology better, to both engage with our consumer base but also I think to work together collaboratively as well using technology. I think there's a real opportunity there. So I think ultimately look at this as really presenting an opportunity for some real positive change in our industry.
Clare: And Tim?
Tim: I would agree with everything Paul and Rob have said and I think you now always try to find new opportunity within a crisis and this has been an incredibly difficult and challenging time for many and a tragic time for many. But it does provide the opportunity to look afresh at how we work how we reach out to customers, where the real value is. And I think you know it's even mentioned in your report that actually it's at difficult times that advice that financial services are of most value and I think this has been a time where you know large parts of the industry have been able to show the real value that they present to clients. And there are many clients that are going to be incredibly glad they took their adviser’s advice as they're dealing with this crisis. And I think one of the things that I think the industry should be looking at as a whole is how can we go out there and campaign for and encourage a more resilient society, a society that is better prepared for crises, that is better protected and that has thought about the future more and that has to be to everyone's benefit.
Clare: I'd just like to thank my guests for their time today and once again if you're interested in reading more about our research please visit our website at adviser.royallondon.com/advicechangesthegame