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'One in five IFAs plan to retire in the next five years'
Over the last 30 years, people have been living longer and what constitutes ‘old age’ seems to be getting later. Despite this increased life expectancy, people’s working lives have not proportionally lengthened. Most people still view 60-65 as ‘retirement age’ and consequently feel the majority of their working lives will fall between 30 and 60.
But the need for financial advice starts well before retirement.
We need help in planning to make sure we have enough to retire comfortably – and the nature of most financial planning these days, is about finding the best ways to pass down wealth tax efficiently within the family - intergenerational financial planning. This means a trusted financial adviser is likely to be needed for at least 10 years.
Shockingly, however, the average age of an Independent Financial Adviser (IFA) in the UK is 58. Even more worrying is the fact that one in five IFAs plan to retire from the industry in the next 5 years and COVID-19 appears to be fast tracking these retirement plans for many.
If you compare this to the average age of other professional careers in the UK, for example secondary school teachers (39) and accountants (42) it’s very easy to see how the financial services industry is considered as an ‘ageing industry’.
The average age of an adviser at The Private Office is 39. The youngest is 25 and the oldest is 59.
There is no definitive answer to as to why this disproportional ageing has happened in the financial services industry, but there are certainly some clues.
Thankfully a thing of the past, but the old days of sky-high commission for product selling, resulted in a widespread mentality of ‘eat what you kill’ and therefore the incentive to share this with anyone else was non-existent. This left a huge gap in the industry where no one was wanting to take on or train up new advisers.
Also for most smaller IFAs, their ability to leave the industry is determined by another advisory business agreeing to buy their business and/or client bank. Over the last 10 years there has been a noticeable shrinking in the number of these kinds of sales, as regulatory and due diligence requirements have increased, therefore some advisers are finding they are having to keep working a lot later than they may have anticipated 10 years ago.
The last 20 years have also seen a hardening of the professional regulation and insurance requirements which meant it became increasingly challenging for companies to attract new joiners to the industry.
Thankfully, the last few years have seen a slight shift in this, meaning more advisers are now entering the industry with the youngest adviser (in 2019) being aged just 19.
It’s important for IFA firms to have diversity – to have advisers of all ages and sex, so that customers can find someone that they are comfortable to work with over the long term.
Why is an ‘ageing industry’ an issue?
Our world is constantly evolving and the way we save and invest is changing over time. Looking back on the past 10 years, there have been a number of key developments within the pension framework alone which have changed the way we save, for example, Changes in lifetime allowance (LTA), carry forward, tapered annual allowance, money purchase annual allowance (MPAA), drawdown changes and auto enrolment to name but a few.
Additionally, economic, political, social and demographic changes are making financial advice an ever more complex area. Individuals are finding now, more than ever, the real benefits of having an adviser to help them negotiate these changes, but equally it can take a long time to build up a relationship and trust with an adviser. If that adviser, then leaves the industry at an inopportune time you have to start the process again.
These issues can be highlighted by considering these four very different financial scenarios:
- John has just turned 60, retired and started to flexibly access his pensions. He has a life expectancy of 87.
- Martina is 45 and in a mid-manager position at a manufacturing firm. She has a good salary and various benefits and shares through work but doesn’t know if they are sufficient to support her and her family.
- Bhavik is 30, has a young family and has just been promoted which has come with a significant pay rise. He wants to start saving towards retirement and his children’s education.
- Margaret is 86 and in long term residential care. She has accumulated a great deal of wealth over her lifetime, so is starting to think about her legacy. Her concern, however, is that her son has no financial awareness, and ‘may lose it all’ so she needs someone to ‘hold his hand financially’ when she’s gone.
Four varied circumstances, and in all the examples there is a requirement for financial advice, but critically there is a requirement for long term ongoing financial advice. If your adviser was an ‘average’ IFA i.e. 58 years old, they would not be able to properly help these people for the 20+ years they would need it.
A financial adviser needs to know everything about your hopes and dreams in order to help you achieve the financial future you desire – and that means developing a trusted relationship, which takes time.
You also want to know that when it’s time to pass your wealth to your family, your adviser will be there to help your loved ones during one of the most difficult times in their lives.
If you’d like to speak to us about your financial needs why not get in touch and see if one of our expert independent financial advisers can help.
We’re also currently offering all those with £100,000 or more in savings, investments or pensions a FREE cash flow retirement review worth up to £500. You can find out more here.