The challenges and opportunities facing financial advisors

By: Barry Shrosbree, Senior Manager at 1Life Insurance Distribution

Barry Shrosbree

The major challenges facing the financial advisory industry in South Africa right now come down to a few key factors. First and foremost is the economic impact. We’re experiencing seriously high interest rates, we’re coming off the back of some terribly high inflation, and naturally all this leads to affordability challenges

One other challenge is consistency in the financial advisory business. There’s a stat that there’s almost as much risk business falling off as there was written, which is quite scary. A lot of that comes down to affordability. Then, of course, there’s the knock-on effect of loadshedding.

Businesses have to invest more just to keep their operations running. Consumers have been impacted by potentially lower earnings, losing jobs and so on. All these things have been coming together in a perfect storm of challenges at the same time. The result is shrinking and financially constrained client bases, and that’s a big concern for brokers. Another concern over the last several years is semigration, with clients or potential clients moving to the outlying coastal regions. Even worse is emigration. It shrinks down the pool, so to speak, particularly in the affluent market.

The other issue that’s worrying advisors is the rise of AI and what this means for the future. It’s exciting on one hand, but there are a lot of question marks for advisors around this. Will I become redundant in my role? What does this mean for me?

Another challenge is more onerous compliance requirements and other processes getting more difficult, such as underwriting. It comes with good intentions and is about making the industry better and fairer for the consumer, but it puts a squeeze on the advisors. They are fearful around making mistakes and they can come under serious scrutiny and pressure because of strict legislative requirements.

There is also a lack of new qualified financial advisors coming into the industry. Our research shows the average age of a traditional financial advisor is over 40. A lot of the older financial advisors are retiring and are not being replaced at a fast enough rate, and there’s a desperate need for new entrants. This is not necessarily just a local problem, either – it seems to be a worldwide challenge.

Overcoming some of the challenges

Moving forward effectively while facing these challenges really comes down to embracing digital technologies. We now have solutions that take away some of the admin burden and the paperwork and the time it takes to create or conclude a policy. Nowadays you can conclude a policy in a single consultation just by having the right tech and partners on board.

Digitalisation can reduce your travel frequency and the time it takes to do business, leaving the advisor with extra freed-up time. You can use it to grow your business and see more clients. Most importantly, you can remove all those obstacles and non-income producing activities. There is so much more efficiency in the process by using digital technologies. More time allows for more advice and ultimately more success.

Education must be emphasised

What I think is important is educating consumers, so they understand the importance of taking out cover – coupled with doing so responsibly and within their means – and still offering value for clients. For example, we’ve got an offering where we’ve combined a life and funeral product.It offers life cover for the main member, and you can add on all additional members to the funeral component, all built into one policy. This passes the savings on to the consumer. Selling within your clients’ means is so important. You must do a financial needs analysis, and then you must inform the client of the reality of their situation. What we build into our modelling is quite unique, and is also an affordability calculation. We can still optimise an appropriate mix of product for the clients specific life stage, need and affordability a , so that our clients can now take a step in the right direction, one that they can afford, and then review it on an ongoing basis.

Insurance shortfalls

We know there’s a major life and disability insurance shortfall in South Africa and it’s well below our emerging market peers. I find this interesting because we should be in a similar sort of situation technically, if we are all grouped together.

I’ve got a couple of thoughts on this. There’s an adage that insurance is sold and not bought. No one wakes up on a Monday morning excited to buy life insurance. It all comes back to educating the consumer or the client, creating real understanding of the implications and why it is they need what they need.

The clients of tomorrow, newer entrants in the markets, might need cover at a lower level, but what we are finding quite interesting, in the feedback on that end of the market, is that these new entrants are not being approached enough. They know there’s a need for cover, but they aren’t sure what exactly, and they need guidance. Perhaps they’re also not being approached in a way they would expect to be today. In fact, research shows that they’re open to digital engagement and might even prefer that. Again, it’s around us adapting and meeting these people where they want to be met. We still need to approach and offer clients solutions that are within their means because it’s pointless signing someone up for something that’s going to fall off a couple of months later. It’s about tailor-making those products to fit the needs of these consumers.

The importance of wills

What’s frightening is the number of consumers who still don’t have a valid will – about 70% of the population in general. We need solutions that bring this to the fore. Seeing this opportunity and gap in the market, 1Life has recently launched our own wills and estate plan where we’ve partnered with a fiduciary tech company to enable digital solutions to make it easy and accessible for clients.

We’ve also got some very precise calculations that determine the shortfall in your estate. It’s one thing leaving things to beneficiaries in a will but often people overlook the actual cost of winding up an estate. So we’ve coupled this with a smart calculator that says based on what it is today, this is your current shortfall. Ultimately, we’re also ensuring that any potential unforeseen expenses are taken into account. Often, people pass away and their documentation is stuck away in file 13 somewhere, and it can’t be found. This process will enable a much faster resolution to winding up the estate, which is a great solution.

There’s various other benefits where you can get discounts on your executor and conveying fees, again putting more money in your client’s pocket. So, effectively, the savings in the long run are passed on to your consumer.

The effect of the NHI

I wouldn’t say this is a company stance per se, just my opinion. I appreciate the NHI will have far-reaching consequences across the various industries, but for me it’s around weighing up the pros and cons of everything. One can’t fault the intent of such an endeavour. It’s undoubtedly a noble one – to create opportunities to give better access to all. The hope is that in various hospitals and clinics it should lead to improved standards. But one of the downsides could be the potential for several job losses in various medical schemes.

There will be an increased burden on the taxpayer. What are the consequences? One must trust and believe that it’s not going to fall to corruption. There are other issues that come with it, such as potential longer waiting times for procedures, and pressure on elective procedures. Those kinds of things would be a bit of a concern.

Forward thinking

Digitalisation plays an important role going forward, particularly in our broker distribution, but even in our own internal direct businesses. We are certainly already on this path. We’ve embraced tech solutions throughout our business and will continue to look to enhance our offerings and our processes. In some respects, digitalisation is still very young. In our broker distribution space, our digital solution, Vantage, is a great example of where everything is fully digital. There’s nothing paper-based – from the start of a policy initiation right through to acceptance of the policy.

We see this as challenging the traditional way of doing business. You might still see the client face to face initially, but if you conclude something later, you can do it remotely. We’ve also had digitilisation play a positive role in other ways too. With some of the products, we can assess and approve a claim in a matter of minutes, and in the space of a few hours, the money could be paid out where it really matters. Particularly on funeral-type cover where it’s desperately needed. That’s a massive change from years gone by. With the advent of AI, one thing is sure, and that’s that our processes will just get better and slicker over time.

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