The Value of Financial Advice in a VUCA World

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I have never been a fan of social media. And yes, I can hear the sniggers from my friends and peers, given I do post a lot of my thoughts and articles on it, and occasionally show my friends what I have been up to. 

Friday, September 9th 2022, 5:05PM 2 Comments

by Mint Asset Management

By David Boyle

Most of which has been highlighting just how beautiful New Zealand is during the past two Covid years.

I believe social media has a lot to answer for around how our general wellbeing is today. I see it impacting not only my generation but also my children’s generation, which I believe has caused, in part, the epidemic of anxiety we have today.

By contrast, imagine living in New Zealand during the Second World War and the levels of anxiety people faced. Then, imagine that, instead of getting highly censored news reels at the movie theatres and on radio news bulletins, you were being bombarded via all the social media channels we have today, on a minute-by-minute basis, about what was happening in Europe and the Pacific conflicts. Imagine the fake news as well! I suspect that the levels of anxiety would have been far greater than they were back then, notwithstanding the terrible loss families suffered at that time.

The ‘always on’ nature of life today can have a detrimental impact on your clients’ wellbeing. Which brings me to VUCA.

The term VUCA has been used since the mid-1980s and is an acronym for:

• Volatility - refers to the speed of change in an industry, market or the world in general. The more volatile the world is, the more and faster things change.
• Uncertainty - refers to the extent to which we can confidently predict the future. The more uncertain the world is, the harder it is to predict
• Complexity - refers to the number of factors that we need to take into account, their variety and the relationships between them. The more complex the world is, the harder it is to analyse
• Ambiguity - Ambiguity refers to a lack of clarity about how to interpret something. The more ambiguous the world is, the harder it is to interpret

My simple premise is that there have been many VUCA moments in the world’s history, but we are more aware of them now, thanks to the technological advances in getting information out to social and media channels much more quickly.

VUCA has come to the fore recently when finally being able to visit financial planners face-to-face and attend a number of industry conferences. Listening to advisers, a few things are top of mind for them at the moment.

The first is around the changes in regulation and the impact they are having on smaller entities that want to continue offering their clients good quality independent financial advice. Business continuity is a key issue for many and working with, or getting new, advisers into their business is a challenge that many are dealing with today.

The second is succession planning.  How to transition out of their business in a way that maintains the integrity of their advice proposition to their current client base, while also unlocking their capital value of the business in a way that helps allow the next generation of financial advisers into the industry.

The third is more obvious and that is dealing with the current market uncertainty for clients and helping them through what could be an extended period of volatility that we have not seen for some time. This is where the true value of advice shines, compared to those investors and KiwiSaver members who don’t seek advice.

It’s not about investment management style, or the cheapest fees, whether advisers choose active or passive funds, it has to be about keeping with the plan. Trying to second guess the market or timing the market is generally a fool’s game.

The value of advice is helping those clients navigate this VUCA world we live in today and provide a safe hand on the tiller to make sure they stay on course through all market conditions. I must admit, given some of the presentations I have attended over the past few months or so, the media doom and gloom relating to markets, the growing tension between China and Taiwan and the continued emphasis on climate change, it’s no wonder many investors see the world glass half empty at the moment.

The thing is no one really knows what is going to happen next and that’s ok, what it means to me is our industry has to grow and adapt to the new environment, find more ways to connect to more New Zealanders to help build their financial wellbeing and have their income live as long as they do.

So, what will the advice industry look like in the next five years and why does this matter? Well I can only speculate. However here are a few things that are likely to happen:

• By the time the new licencing comes into play there will be fewer advisers across all the streams of advice than there are today
• The cost of advice will likely increase due to the regulatory changes that have been implemented, notwithstanding the recent inflationary impacts. Some practices have already segmented their client bases and the level of service to reflect this
• A number of businesses will continue to buy smaller books, both in insurance and investment, to help build economies of scale. This should provide and improve the profitability of their business, which will allow them to either attract, or train new advisers
• Others will provide a safe harbour for those advisers not wanting to get their own individual FAP and continue to grow at a local or national level
• Further consolidation will occur with fund managers and insurance providers providing a succession plan for some advisers seeking to unlock the value of their business but able to plan with confidence their next stage of life
• The above activity will, in my opinion, also lead to the next stage of moving financial advice from an industry to a profession

I’m hopeful we do not follow the legislative and bureaucratic approach that our Aussie cousins have adopted recently  (and who are now reviewing this) so the cost and delivery of advice is not prohibitive to the average Kiwi. I am also hopeful that there will be a range of light advice models that will work for more Kiwis and that might take into account better technological solutions, as well as face-to-face contact when needed, and Kiwis will look to pay for that advice because they will see the value in doing so.

So, I believe that the financial advice industry today will become, in time, a true financial advice profession. What we have to ensure is that the healthy tension between advice, legislation and product development is aligned with improving the overall financial wellbeing of New Zealanders. Helping more Kiwis through these tough times will show the true value of advice and this can only have a more positive outcome for the country in the years to come.

Disclaimer: David Boyle is Head of Sales and Marketing at Mint Asset Management Limited. The above article is intended to provide information and does not purport to give investment advice.
Mint Asset Management is the issuer of the Mint Asset Management Funds. Download a copy of the product disclosure statement here.

Mint Asset Management is an independent investment management business based in Auckland, New Zealand. Mint Asset Management is the issuer of the Mint Asset Management Funds. Download a copy of the product disclosure statement at mintasset.co.nz

Tags: Mint Asset Management

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