Ask a client if they need to change their estate planning, investment portfolio or insurance cover and they will very likely say no. If you ask them instead what has been going on in their life over the past year however, then you will almost certainly get a very different answer, by way of the information that they share. Unlike their financial adviser, most people won’t recognise the significance of a lot of changes in their lives as translating into suitability shifts and this underlines part of the real value of annual reviews.
When did annual reviews become a requirement?
The requirement for annual reviews was introduced under the Retail Distribution Review rules at the end of 2012 and heralded a new way of working for many IFAs, as now the payment for, and delivery of, an ongoing service is a contractual requirement between adviser and client. An annual review of investment portfolios is also a specific requirement under MiFID II.
Providing ongoing servicing is a critically important area and shortcomings run the risk of both dissatisfied clients and regulatory censure.
How has this influenced financial planning?
Now well embedded, adviser charging has given rise to a more holistic and less transactional style of goal-orientated financial planning advice. Annual reviews that focus on progress toward goals enable performance to be looked at in context. The recent pandemic and its impact on the stock market is a perfect example and our experience was that those clients with a trusted relationship with their adviser and a longer-term, goal orientated view on their investments were much less concerned by a short-lived bear market.
This is supported by the findings of Royal London’s 2020 report, ‘Feeling the benefit of financial advice’, which revealed that professional advice delivers so much more to customers than the expected financial benefits. It also helps to improve their emotional wellbeing, making them feel more confident and financially resilient, especially in times of crisis. This was even more apparent where there was an ongoing relationship in place.
The evolution of annual reviews
The coronavirus pandemic has pushed many UK advisers and their clients to embrace new practices. Amongst these was a rapid transition to online reviews and this evolution gives financial advisers several new opportunities going forwards:
- The ability to take on smaller, less valuable clients, because they are easier and more cost-effective to service via an online offering.
- Removing the geographical restrictions on where advisers can look to conduct business, with a possible two hour drivetime replaced by a new national marketplace.
A 2020 survey by fintech provider, DPR Group, of 2,000 mortgage consumers, brokers and lenders also found that over 1/3rd of mortgage consumers expected annual reviews with their broker, indicating a demand for ongoing service for those with what have been seen as transactional products.
This is not surprising and changes to employment patterns, the housing market, an ageing population and the introduction of pensions freedoms have all contributed to consumers having greater control of their finances, but also requiring advice and guidance to help them do what’s ultimately in their interests.
Vision for the future of financial advice
Whilst face-to-face will obviously continue to have its place, the familiarity we now feel with online interactions will ensure that the world will never go back to the way it was pre-pandemic. Industry body, PIMFA, recently tasked the industry to innovate to develop lower cost advice services for the wider market, as part of its vision for the future of advice. The transition of annual reviews to online is just the first step therefore for the wider adviser population to deliver more cost-effective client engagement.
Annual reviews serve as valuable opportunities to build on relationships with clients and especially in more complex times, such as those we have experienced recently, the importance of someone who listens, understands and provides solutions to life’s challenges is not to be underestimated.
We work with our advisers to ensure that they know what needs to be done as part of a review and have the tools to make the process as efficient as possible. To find out how we can help you, please click here.
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