A clear value proposition gives advisers the edge in an evolving retirement landscape

The ticket to success for South Africa’s employee benefits consultants and independent financial advisers (IFAs) is to adapt to change while adding to their value offering to clients. Delphine Govender, CIO at Perpetua Investment Managers, said that stakeholders across the investment value chain will have to adapt to many changes in the savings landscape, most notably the change in consumer buying patterns on the back of the continuous acceleration in technology-backed innovation.

She was presenting to an audience of diverse investment industry stakeholders during the fifth annual i3 Summit, jointly hosted by Sanlam Investments and Glacier by Sanlam last month.

“How we consume financial products and services is not only changing, but the change we are experiencing is one-directional; there is simply no going back,” said Govender.

It is impossible to take a ‘business as usual’ approach to retirement planning because the traditional customer journey has shifted into the digital world and developments such as blockchain are here to stay. In the past, customers typically had one job, one employer, a pre-determined investment horizon and a predictable pattern of investing behaviour in a defined benefit (DB) environment. Nowadays millennial and post-millennial investors have a totally different view of the workplace with unique, specific and dynamic advice needs. They have unpredictable expectations and flexible savings objectives. “The most important evolution in the investor journey is that one size no longer fits all,” she said.

Also, competition comes from unprecedented directions. In 2017 the world’s biggest money market fund did not belong to an asset manager but to Alibaba, a Chinese tech company. And Facebook knows more about a client’s behaviour and preferences than any financial advisory firm.

Advisers will have to take care in segmenting their future clients and in not making oversimplified assumptions about their client segments, to ensure that their unique needs are met. “Many 25-year olds are financially more sophisticated than the average 50-year old.” Govender believes that the advice segment’s response to an evolving customer landscape begins with a careful reassessment of their role and the value added through advice, to their customers. She added that while there is an innate inability and unwillingness among many stakeholders to embrace change, customers will eventually force the issue.

“Your future client is going to focus on your value-add and will seek out an adviser that is willing to walk the journey, whatever that journey is. They will also demand greater transparency and simplicity in their interactions with you,” said Govender. There is no better illustration of this change than in the move from a DB to defined contributions (DC) systems of retirement funding.

Under DB retirees spent little time thinking about where their retirement funds were invested whereas under DC they benefit from full transparency, clear choice, simplicity and cost efficiencies to name a few. One possible negative under this ‘freer’ environment is that consumers become obsessed with short-termism. “Clients are too concerned with brand, security and quarterly returns and allowing these factors to influence their decisions rather than focusing on their long-term savings objectives,” she said.

Another change underway in the investment management industry is the gradual blurring of lines between the products and solutions offered under the ‘institutional’ and ‘retail’ banners. “As clients become more converged the institutional world and retail world are starting to merge, but not in an orderly or predictable way,” said Govender. She added that a closer examination of the product and solution universe confirmed that institutional was moving closer to retail. This development is confirmed by the proliferation of umbrella funds and the growth within them, coupled with the range of choices previously being reserved for institutional investors now being offered to the average retirement fund member.

These changes will impact on the tried and tested distribution models currently in use. “Advisers – and the old traditional employee benefits consultant, the so-called IFA – are moving close together, meeting each other in the middle to become investment specialists and to understand regulation and the nuances of fees,” said Govender. And there is much more that advisers can do to prosper.

A good starting point is for investment platforms and advisers to be transparent about advice and product fees. Clients want to know what they are getting and whether they are paying a fair price for it. And they are increasingly asking questions about fees paid for market return versus fees for genuine active management: ‘Am I paying an active fee for a market return?’

“We are in an era where human advisers add the most value by filtering the information overload clients are facing,” said Govender. This value extends to helping clients to make sense of the ‘noise’ by explaining investment jargon in such a way to guide clients appropriately on their investment journey. Communication is crucial and advisers who fail in this area will find their clients slowly moving to those advisers who offer the most user-friendly forms of communication.

In this digital era advisers are also responsible for keeping clients’ information and accounts secure. “How are you as adviser preparing for this?”

“We exist for the benefit of our clients,” concluded Govender.

“You must focus on what you can control, find your niche and define your value proposition – because there is nothing to fear if you can add value”.