Heathcote Investment Partners founder, Clayton Coplestone, reviews the past and future of financial advice in NZ…
“The past is a foreign country: they do things differently there.”
Written more than 70 years ago as the opening sentence to the novel The Go-Between, the above quote, somewhat ironically, remains current: nothing stays the same forever; technology, demographics and culture move on.
Nostalgia might be a comfort but instead of mooching about the past, it’s likely more useful to adapt to present reality even if that means changing long-held practices.
But change can be a challenge in the NZ financial advice sector where old ways of doing things can be deeply entrenched.
Recently, for example, an independent financial adviser told me his investment preference revolved around long-term allocations to a handful of fund managers.
The rationale was based on the considerable time spent understanding each manager’s investment philosophy and process, which he was confident in communicating clearly to clients.
Loyalty is admirable. But two of his ‘preferred’ managers had just seen meaningful senior investment staff exits – with one of those firms facing ownership uncertainty – while another continues to follow a highly distinctive investment style that has remained out of favour for over a decade.
As the local financial services industry matures, the luxury of remaining loyal to single strategies or funds managers has passed. The investment advisory landscape in New Zealand is undergoing a profound transformation.
Traditional investment strategies and client engagement models that once dominated the industry are now being challenged by shifting demographics, evolving client expectations, normalised portfolio returns and rapid technological advancements.
For financial advisers, the imperative is clear: adapt or risk obsolescence.
New Zealand’s aging population is reshaping the financial advisory sector. As of 2020, individuals aged 65 and over, represented 16% of the population, a figure projected to rise to 26% by 2060, in a demographic shift accompanied by a notable change in financial attitudes among babyboomers.
Historically, the babyboomers favoured growth assets but as they approach or enter retirement many lean to more conservative and predictable financial strategies.
Factors such as increased longevity, concerns over healthcare costs and a desire for financial stability in retirement underpin this fundamental risk-profile rethink.
Advisers must recognise and respond to these changing preferences or risk losing relevance with a babyboomer cohort already looking outside the industry for financial guidance to manage both retirement income and succession planning.
The wariness over the value of advice comes at a critical moment for the country: New Zealand is on the cusp of a significant wealth transfer with an estimated $1.11 trillion expected to pass from individuals aged over 55 to their beneficiaries.
However, the intergenerational wealth transfer presents both challenges and opportunities for the local financial advice industry. Beneficiaries, often younger and more digitally savvy, are likely to have different expectations from the financial industry, prioritising transparency, lower fees and digital engagement.
Younger generations are unlikely to pay a ‘relationship premium’ as their parents did during the heady days. Advisers who won’t, or can’t, cater to these evolving preferences risk losing clients to more agile competitors.
At the same time, the traditional investment model – characterised by active management and face-to-face advisory services – has been disrupted by digital platforms that promise to ‘democratise’ investment management.
Some of the new-breed platforms offer cost-effective, algorithm-driven investment solutions that appeal to a broad audience including younger investors and those seeking realistic fees in synch with normalised portfolio returns.
Moreover, passive strategies such as index funds and exchange-traded funds (ETFs) increasingly serve as low-cost, diversified core allocations for many investors, leaving fee budgets to be spent more sparingly on fewer, alpha-generating actively managed funds.
Advisers need to develop a deeper understanding of the passive options now available and consider integrating them into client portfolios where appropriate, avoiding paying active fees for index-like outcomes.
Today’s investors are increasingly value-conscious, seeking personalised advice in a trend notable among younger generations who often prioritise environmental, social, and governance (ESG) factors over traditional investment fundamentals.
While the mind-shift challenges old-school financial advice methods, technology offers a solution with tools that analyse spending patterns, investment preferences, and risk tolerance to provide tailored recommendations that resonate with clients.
For instance, digital platforms can facilitate real-time portfolio-monitoring, automated rebalancing and seamless communication. Additionally, the use of data analytics can provide insights into client behaviour, enabling advisers to anticipate needs and offer proactive advice.
Technology can also help advisers keep on top of the growing burden of regulation as ever-changing rules affect investment products, fee structures, client disclosures and ethical standards.
Clearly, the convergence of demographic changes, technological advances and shifting client expectations has brought the New Zealand investment advisory sector to an important crossroad.
But financial advisers who take the path embracing technology that aligns with the investment needs and values of their clients will not only survive but thrive in the future: they will do things differently there.