Lawyer Monthly hears from Rupert Smith and Bill Bottomley, Corporate Technical Director and Communications Director at Lifetime Financial, on the growing need for cooperation between the legal and financial sectors.
Over the last decade, access to financial advice has been reducing. If left unchecked, many of our shared clients and prospects could face a less secure future.
Currently, there are only around 27,000 financial advisers in the UK, roughly a fifth of the total number of lawyers. Consequently, access to legal services has grown whilst access to financial advice has shrunk. This has resulted in many people not understanding their complete financial position, including services supplied by lawyers such as Wills, Power of Attorneys (POA) and Inheritance Tax (IHT) and estate planning.
As professionals we understand that, whether face to face or via video conference, professional advice is essential for most people. Technology can help us perform our jobs, but currently robo-advice is not what most clients want, so a solution must be found for a greater number of people to receive sound financial advice.
Challenges
A major issue for the provision of mass market financial advice is the ageing profiles of many advisers, the majority of whom are approaching retirement. A contributory problem is that many of those people seeking advice are turned away because they do not meet an adviser’s wealth threshold, as the majority of the industry is predominantly interested in high net worth individuals looking for investment solutions.
The financial services industry has also suffered from a small number of providers adopting poor practices over recent years which has damaged the industry’s reputation. To a lesser extent the legal services sector has also suffered from the action of the CMC market, resulting in fewer people seeking the support of advisers.
Over the last decade, access to financial advice has been reducing.
There is a solution, and collaboration with lawyers is essential
It is unlikely that we will create a financial services industry with enough advisers to support the needs of the population individually. But what we are seeing is a greater emphasis on employers taking a lead in terms of their workforces’ financial welfare.
Uber’s recent offer of Automatic Enrolment pensions to its workers highlights a general acceptance that employers will need to do more in the future to support the financial welfare of their employees. Similar moves are likely with other firms that engage gig economy workers, and other government measures, such as the changes to IR35, are likely to see more self-employed workers move on to the payroll.
Here, there lies an opportunity for both financial advice and consumer legal services. For the last six months we have been trialling a financial advice service that the employer sponsors and is available to all their employees.
This provides access to a captive market with the employer providing the service as part of their compensation and benefits package. The employer covers the cost of an individual’s financial review which provides an employer with an understanding of their total financial situation. This includes their personal and employer sponsored pension, life and other protection products and savings and borrowings. It also covers Wills and POAs with any identified needs being passed on to a lawyer.
From an employer’s perspective this adds significant value in that their employees will better understand the value of their benefits package – which research suggests most employees do not. Given that many employees will have pay freezes for the foreseeable future, boosting understanding of how employee benefits could equate to an extra 3-20% of their salary can be immensely important.
What we are seeing is a greater emphasis on employers taking a lead in terms of their workforces’ financial welfare.
But what is also clear is that there is scope for broadening the offering, including Wills and POAs and extending it to the likes of IHT and estate planning.
We recently conducted a survey amongst nearly 350 employees of an education provider and client HCAT in the North East of England. The survey clearly showed that people do not differentiate between the services of either lawyers or financial advisers and found that the third most important financial subject that they would like to find out more about was Wills. 40% of those surveyed said Wills were a subject of interest. Topping the list was pensions at almost 80%, and savings at 50%, but Wills were more important than mortgages, protection, investments, budgeting, tax breaks and other company benefits.
It is clear, in our experience and based on this type of employee research, that greater co-operation between legal services firms and advisers will be the future.
Addressing reputational issues
It’s an unfortunate fact that the actions of a minority of individuals have damaged the reputation of an industry. Part of the problem is that consumers lack the resource and knowledge to carry out the sort of due diligence that a corporate entity would.
In our vision of how mutual cooperation would allow for an employer-centric offering, the problem is easily resolved. Identifying the wheat from the chaff is much easier when an employer is in control as they can carry out a proper due diligence process of suppliers. This will ease the process when either a lawyer or financial adviser already offers services to an employer and wants to extend this to a broader service supporting their employees.
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To the future
Setting up an advice service for employers will reap returns long term but requires a significant investment, both in time and money, in the short term.
I foresee a business model where financial and legal services collaborate in offering a joint service to employers and their employees. Such a partnership has never been so timely, and against our current societal and economic backdrop, so important.
