The market for traditional financial advice is shrinking. In the US, the average age of a financial adviser is 55 – just ten years away from retirement. This has led pundits to predict that the industry will go through a process of slow decline as these experienced advisers reach retirement age and begin to leave the industry for good.
Of course, this also provides an opportunity for young trainees to be recruited in their place. Financial advisers are relatively well-paid jobs and therefore, depending on the level of demand for their services, job openings in the sector will skyrocket as firms seek replacement staff.
What does this aging demographic say about financial advice? What has happened to the industry?
And most importantly, is it necessary to find a financial adviser in the UK, or has it become a quaint luxury expense that few can afford?
What the age of the workplace hints about the marketplace
An aging workforce is a sign of a static or shrinking industry. It implies that either;
- The business is not expanding its headcount year on year, and therefore, so long as its employees are retained, it no longer needs to hire graduates
- The industry is failing to attract new talent and is therefore forced to pay more to retain existing staff who would perhaps prefer to move onto something else.
Both of these points raise eyebrows because an explanation isn’t immediately forthcoming. First of all, savings and investments have never been more important. It’s not like the stock market has reduced in size, nor has the need to save money become less important.
Financial adviser knowledge hub Financial Expert gives the following reasons could be put forward to explain why this apparent decline might be the case:
A lower propensity to save
With high hour prices and an aging population placing pressure on retirement plans, in fact, it has never been more important to be saving. But perhaps the younger generations simply do not have the disposable income to be able to save in the same way as their parents. Preferring instead to drip feed their income into a bank account rather than investing.
Empowerment to ‘Do It Yourself’
Investing is more accessible than ever. Investors don’t feel they need a financial adviser to hold their hand.
- Investment platforms look so user-friendly and inviting. Traditionally, managing a stockbroker account was quite a technical affair. Also, when trades used to be made by phone, this probably felt uncomfortable for individuals who weren’t as confident using financial jargon or making decisions on the spot.
Modern investment platforms have a calm and simple design ethos. Investors can make investment decisions at their leisure and make a trade without judgment or pressure from anyone.
- Free investing courses are widely available online. In the past, becoming educated about investing was more expensive, requiring physical classroom courses or a stack of premium-priced book titles. This must have made financial advice look less expensive and a better value proposition. Almost all good information is virtually free today.
- Other websites and social media allow people to be much more connected to events and news about the stock market. This has the effect of bringing the stock market out of the fog of mystery. When we see something as complex and mysterious, we are much more inclined to pay for a specialist to help us deal with it. Sometimes we just don’t have the time and energy to invest to become an expert.
However, because the news of the stock market is much more at our fingertips and surrounds us each day, the stock market must feel less intimidating.
A generational fear caused by the financial crisis
It’s also worth sharing a final theory, which is that the financial crisis of 2008 – 2011 left a lasting scar in the memories of young people who were teenagers and young adults during that period.
Because the crisis was so closely connected by errors of judgment of banks and financial representatives, and the resulting recession was so deep, this will have switched many off from investing.
Investing is an activity that requires confidence and patience. But where’s the appeal if you don’t wholeheartedly believe that the stock market will bring you great returns over the long run?
Young people who lived through that crisis could be forgiven for connecting the stock market with serious loss, rather than a bounty of riches. They are probably more likely to stick with safety than seek out a financial adviser to help them dip their toes into Wall Street.
This of course will be quite detrimental to young investors, who will fail to tap into the higher and premium returns offered by equity and bond investments.
Is finding a financial adviser necessary?
Returning to the original question of whether financial advice is necessary. The answer is a clear no.
The sheer volume of self-directed investing by so-called ‘armchair investors’ shows that self-education and diligent research can be an effective replacement for financial advice.
But this won’t apply to everyone. Many people will have little interest in spending 100 hours learning about the ins and outs of a market they aren’t very interested in. In fact,100 hours is probably an understatement of the amount of time required to increase your knowledge to a level where you can capably and effectively build an investment portfolio which will achieve your investment without exceeding your risk tolerance.
Others may have less confidence in their own financial decision making, and would much prefer professional to make decisions on their behalf. It can be easier to sleep soundly in the knowledge that your assets are in the capable hands of an investment professional. Investing is supposed to improve, rather than diminish your quality of life after all.
Therefore, whilst we can say with certainty that finding a financial adviser is not a necessary step to investing for the first time – it will still be the right decision for many people.