Growing numbers of advisers are reviewing how they segment their client bases, according to the ‘2019 Annual UK Financial Adviser Survey‘ from Schroders.
The global asset manager found that 63% of the 135 financial adviser survey respondents are reassessing how they classify and group their clients, compared with just 49% last year.
But only 19% segment their clients according to their life stages, with 70% still using assets under management (AUM).
The remaining 11% use non-specified ‘other ways’.
According to Schroders’ intermediary solutions director Gillian Hepburn, advisers are starting to think about segmentation differently, resulting in a greater focus on clients’ life stages.
The problem with only considering AUM is that it takes away the different needs clients may have in different situations and life events.
Hepburn suggested occupations should also be considered as a way to segment a client base, as people working in the same field might have similar issues and requirements.
Regulator watch list
Another area advisers need to keep a weather eye on is the Product Intervention and Product Governance Sourcebook (also known as Prod).
While the regulations don’t use the word segmentation, Hepburn said, it is “heavily implied”.
There was a general assumption that it would automatically lead to client segmentation.
She cautioned that the FCA might turn its attention to Prod next year, to ensure that advisers have a suitable proposition for their entire client base.
Appealing to the next generation
The perception that only older people seek out financial advice seems to persist, with 52% of advisers saying that the average age of their clients has increased over the past five years.
A third of survey respondents said the average age had remained the same, while 15% claimed it had lowered.
But the largest client segment (65%) remains those aged between 50 and 65; followed by the over-65, who make up 25%.
Just 9% of current customers are aged between 20 and 50.
Worryingly, Hepburn revealed that approximately 65% of people inheriting wealth are likely to fire their adviser since there is a lack of engagement.
So, when it comes to younger investors, financial advisers appear to be falling short.
Schroders found that 80% admitted to not having a separate sales and marketing strategy to target the next generation.
Future opportunities
Even though the majority of advisers are not targeting young people, 79% see wealth transfers between generations as a business opportunity, especially considering that over 90% of clients are aged 50+.
Hepburn said: “There is a real concern that financial advisers are not engaging proactively with younger investors who will offer them the opportunity to sustain and grow their business over the long term.
“Intergenerational transfer of wealth gives financial advisers the chance to build value in their business and service the next generation.”
Worries unchanged
Unsurprisingly, Brexit remains the single biggest concern for investors, with as many as 94% talking to their financial adviser about it.
This resulted in 40% of clients moving their money out of UK assets – 74% increased their allocation to the US, which has been seen as the strongest performing equity market since the Brexit referendum result.
But Europe took a hit in 2019. Only 22% of advisers reported an increased asset allocation to the continent, compared to 52% in 2018 and 50% in 2017, Schroders found.
How the UK is going leave the EU is another concern, as different options will need different strategies.
A quarter of adviser said that if the UK was to leave with the deal negotiated by prime minister Boris Johnson they will make “significant tactical changes to their portfolios”.
That number grows to 35% in the event of a ‘no deal’ Brexit.
ESG the next disruptive force
With the Extinction Rebellion protests and Greta Thunberg’s Global Schools Climate Strike marches grabbing headlines around the world, climate change is definitely the topic on everybody’s lips.
Schroders found that 76% of UK advisers believe that disruption from changes in the environment, including climate change, will increase.
This is mirrored by clients bringing up the topic more frequently.
According to the global asset manager, 47% of advisers said that climate change was raised by their clients either “very frequently” or “most of the time”; and 41% reported a similar trend about being questioned on the environmental impact of investments.
Nearly half (43%) admitted to explicitly considering ESG factors during their fund selection process, as 91% of financial advisers reported that up to a quarter of their clients expect their investments to reflect ESG criteria in some way.
Optimistic outlook for UK
Philip Middleton, head of UK intermediary at Schroders, said: “As we saw in the 2018 survey, the uncertainty of Brexit remains a prevailing concern for investors.
“However, this year’s data gives us reason to be cautiously optimistic on the outlook for the UK. Whilst 40% of investors have moved out of UK assets, capital looks set to be deployed back into UK equities with 41% of advisers expecting to increase allocation in the next 12 months.
“As concern has built in 2019 about the ongoing climate emergency, our survey suggests that awareness of ESG factors among investors is rising and is fuelling conversations with advisers.
“We are pleased to see that 43% of advisers consider ESG factors in their fund selection process, as ESG continues to grow in importance.
“With advisers expecting continued and increased disruption caused by environmental changes, technological advancements and geopolitical challenges, 66% expect market volatility to increase.”
