Podcast: An Adviser's Point of View - Gillian Hepburn

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Podcast transcript

Simon Cooper: Welcome to an Adviser's Point of View, Cazenove Capital's new podcast series for financial advisers. I'm your host Simon Cooper, Head of DFM Relationship Management at Cazenove Capital. Today our guest is Gillian Hepburn, Schroder's Head of Intermediary Solutions. Gillian works with financial advisers across the country ensuring they have the information and tools they need to help their clients. Gillian joined Schroders in 2019 following an extensive career at Standard Life and consulting roles with a range of platform providers and financial advisers. Gillian, thanks for joining us.

Gillian Hepburn: Delighted to be here, Simon. Thank you for having me.

Simon: Can you tell us about your background and how it informs your work that you do?

Gillian: Yes, sure. I have to say I joined the industry over thirty years ago now, so I have I guess a lot of experience. I thought hard about this question, and I think having a massive focus on the customer has absolutely informed the work I do today and that probably started way back before I went to university when I worked at Boots, you know Boots the chemist shop? A good old Thursday night, Saturday girl and it was instilled in us from a really early age that the customer was the most important person.

I think having that in the back of my mind all the way through my career has really I guess informed the work I do today and if I think about the asset management industry and what we do Simon, and also the advisers, we've earned the right or we have to earn the right to manage, protect and grow what is people's hard earned cash often, at the end of the day.

It's therefore really important that we never lose sight of that. I often talk about the man from the Pru, in terms of what is this all about in terms of our industry? In terms of encouraging people to save and invest without the industry I certainly wouldn't have been able to afford my first property, shall I say, because my parents saved really hard to do that. We've just got to bear in mind that the customer has got to be in the heart of everything that we do.

Simon: Brilliant, it’s interesting that there after thirty years you are still learning which is good to hear and also you still talk about the man from the Pru, which I think more people need to talk about the man from the Pru. One area that has always interested me is on demographics, and I wanted to focus on that today, in particular with UK advisers.

But before we do I don't think we can do a podcast without touching on the events of the last couple of years where the pandemic has been a very unsettling time for almost all of us. How do you think that has impacted the adviser community? Do you think that is going to be lasting impact?

Gillian: It's a great question and maybe we're still too close to the event, aren't we, to really understand exactly what the impact has been and whether it will last. Clearly, we see this massive shift towards the use of technology, particularly in terms of engaging with our customers and I think certainly some of that will remain but already we're seeing a move back to face-to-face again.

I don't know if it's the same in your side of the business, but people are really keen to get back out there and meet. We're social animals, aren't we? In terms of some of the other things I'm seeing in the adviser space, people in some respects have hit the reset button and really thought about their lives and their future. What we're seeing is an increasing activity in the mergers, acquisitions, succession planning part of our industry. That's quite interesting.

I think what we're also seeing is certainly from an investment perspective a significant rise in advisers looking at outsourcing their investment proposition and we've asked why that might be and they said, 'Quite frankly, the pandemic in some respects and the extreme volatility in the market kind of spooked them.'

Whilst clients, actually if they remained invested and held their nerve are actually in a very good place but clearly that initial freefall almost, if you could call it that, caused some real concerns and advisers said they had some really difficult conversations with their clients and decided that maybe there was a different way of managing client investments. I think that's been an interesting shift.

Certainly, our adviser survey is continually telling us that there is a move to that. I think another point though Simon is it absolutely helped advisers to demonstrate the value of ongoing advice because, as we know, that's always under threat, isn't it? What are clients paying for on an ongoing basis?

For those advisers who really held client's hands during the last year, year-and-a-half and helped them to stay invested have really demonstrated the value that they add to clients, whereas I'm not so sure if clients were paying for advice when they need it might have behaved in the same way. I'm not sure if your thoughts would align with that.

Simon: Yes, no I think it does. Certainly, from our side of the business as well it's been a very interesting eighteen months and I think advisers have looked at the way their whole businesses are run, not just the investment side. It created a few opportunities for them as well. That leads nicely onto the next question which I know is an area you focused on which is intergenerational wealth transfer.

That comes across as quite a technical term but in reality, it's a trend that advisers are very familiar with, older generations have accumulated unprecedented levels of wealth. And over the coming years it’s going to go somewhere. It is going to go to their children and their grandchildren. So I suppose my first question is… What does intergenerational wealth transfer and that moment of moving between the generations mean for advisers?

Gillian: It's a great question, isn't it Simon? I could do a whole podcast on this one. I think it's a fascinating topic. My question is - is it an opportunity or is it actually a threat for adviser businesses? We hear about this huge opportunity of £5.5 trillion moving across the generations over the next thirty years and many advisers saying, 'Well, that's fine but I'll just get on with what I'm doing now because thirty years is quite some distant away.' I would actually say that it's happening now and we're beginning to see that.

You mentioned grandparents passing on wealth, we're seeing a lot of people looking at skipping generations, for example, for all the right reasons or all the wrong reasons if you're the one that's been skipped.

The big challenge for advisers is a statistic that 65% of people inheriting wealth will not use their parent's adviser and I guess we have to ask why that is because if that's the case then advisers, particularly those and I talked earlier about advisers looking to sell their business and succession planning. At the very point where they're trying to sell their business potentially, we have money that's moving from one generation to the next and potentially out the door.

I've actually started to talk about this in the context of the 'great wealth retention strategy' rather than 'transfer strategy' because it's about trying to maintain and engage that wider family and keep that money within the business. I think we're at a really interesting inflexion point on all of that at this point in time.

Simon: The number of clients that leave advisers once the money has been passed through the generation, if it's anything like me everything my father did I want to do the absolute opposite to. Is that a trust issue do you think or the adviser hasn't put the relationship in place? What's the response got to be from the advice industry?

Gillian: You're absolutely right. First of all it's I guess a bit of a wake-up call in that it's happening now and it's about engaging that next generation. I read recently that less than 14% of advisers actually have a connection to that next generation and we hear the reasons for that, right? advisers, if I look back to post Retail Distribution Review, thousands have absolutely done the right thing. They've professionalized the business, they've worked with typically wealthier clients because they've been there, yep? You just have to look at Pensions Freedoms and the opportunities that that's given.

Therefore, there's maybe not been a need to engage with that next generation and the wider family. I think the first point really is it's got to be an engagement strategy here and it can be quite simple. Again, advisers often say, 'Well, I don't have a proposition for that next generation. I won't make any money from them, and I might not even have the skills within my business.'

I think engagement sometimes, Simon, can just be quite straightforward and simple and it doesn't always need to be profitable. The example I give is my son has just moved to Dubai to take up a job. I have an adviser, his father has got an adviser and actually he does have a buy to let mortgage, so there are three advisers that could have connected with him just to very simply say, 'We hear you're off, congratulations on the job. Do you understand what the tax position over there is for when you've got any excess money?'

That's just about getting in front of him. I think there are interesting ways advisers can just make sure that their brand is in front of that next generation.

Simon: It's lighter touchpoints I suppose, at the same time trying not to alienate the older generation or the ones holding the money at the moment.

Gillian: Correct. An interesting statistic, Simon, because I love numbers, 76% of people inheriting wealth want to see an adviser at the point of transfer. I guess the argument is, 'Well, why don't we engage with them earlier than that'? We also have to understand the family dynamics, many people now have a fear of passing on wealth should they require it, so care homes are great examples of that.

They also have a fear of passing on wealth where, quite frankly, it might be squandered. They care very much about what their family are going to do with their money. Equally often when we look at the research these parents passing on wealth also want their children to see an adviser. There is a demand there, it's just all about how we make those connections and how we do it in a way that maintains I guess the adviser's business in front of that next generation.

Simon: And it absolutely is in the advisers best interest for future business, so I mean is seems like something they should be concentrating on. That’s very interesting Gillian. I suppose the younger clients, a lot of people are talking about it but they expect a lot more of a digital experience don’t they these days.

How do you think the industry is doing and making that transition? Do you think it's going to mean for the face-to-face contact that many advisers really value? Are we going to stop that? Are we going to worry about giving that up? Is it going to affect their business? How do you think that's going?

Gillian: It's a great question, isn't it? Particularly given the rise and the use of technology that we've seen. I do think you're absolutely right; younger clients expect more digital experience and that's something I've been talking about in the broader context of wealth transfer.

Here's an interesting one, I'm not sure if anybody that's listening uses TikTok. I did a bit of research using it a few weeks ago, the hashtag 'investing' has had over one billion views on TikTok, right? Somebody is engaging with that next generation and probably as a result a lot of that money and I can speak as somebody who is aware of young people doing this, their money is getting invested in crypto, right? Somebody is engaging with that next generation but maybe not in the traditional way that we would.

I read a great article recently where a young person said of advisers, 'They need to get into my world because I'm not going to get into theirs.' That's quite a powerful statement, isn't it? I don't think it's necessarily dancing on TikTok, right, but I think there's really simple ways that advisers can look at technology opportunities to engage with that next generation, even if it's simple digital content or just some great apps out there that they can use within the business, white label them and encourage young people to engage in their finances where they can get nudges on different aspects of their finances.

I think there's opportunities. I also think there's still always going to be a place for face-to-face contact. I think it's about having a broad range of engagement opportunities but really starting to think about this whole rise of technology. Even the FCA are on TikTok now. Certainly, some interesting times ahead.

Simon: It sounds like I need to sit down with my teenage daughters to explain TikTok to me. Another side of what they often talk to me about is sustainability and how that fits into it. Some of the immediate challenge for advisers appears to be regulatory but I wonder what your thoughts are on over the long-term, especially when it comes to the demographic issue whether sustainability is going to continue to be a key driver for advisers.

Gillian: It's a great question because obviously with COP26 just finishing it's massively high on people's agenda. We've just finished our annual adviser's survey where we asked about the impact of COP26 just as an example and they said that I think well over 60% of advisers said that they fully expected a rise in demand for sustainable investments as a result of that.

I actually don't think it's necessarily a demographic issue anymore in terms of only young people want to do good with their money and I think also talking to young people about sustainability is a great way of getting on their agenda and educating because anytime we speak about it it's a great topic in terms of how we can invest to better people and planet.

Education and engagement is really important here and I don't necessarily think it's a demographic issue anymore. Interesting obviously from an adviser perspective we have got regulatory changes I think heading in our direction, we've seen the FCA papers on the new taxonomy, which I was on a call the other day discussing and debating that and I think there's some interesting things going on in terms of how we ensure consistency across the industry. How we all research, how we describe sustainability and the investment offerings that we have.

I think we're still on a journey with all of this but it's certainly firmly on the radar and certainly for us and I'm sure you're the same, Simon, our role in educating financial advisers and also therefore their clients has got to be front and foremost at the moment.

Simon: Totally agree. Interestingly, you mentioned the word 'the regulator', I sit down with an adviser and that seems to be all they talk about. Are there any other issues you think that they face or the industry faces over the next couple of years?

Gillian: Yes. We're the same interestingly, again going back to the adviser's survey. Year-on-year-on-year we ask about the challenges that they're facing as we move into the next year, we always do the survey in November. The top two challenges are always the same, regulation and PI cover, yes? This year I've decided to do a bit of a deeper dive. Rather than say, 'Oh, yes. Every year it's regulation.' What do we mean by that and what is on the horizon?

I think there's quite a number of things heading in our direction. We've got, for example, the consumer duties, so the FCA paper which has been described interestingly as 'TCF on steroids', so that's an interesting one. Clearly there will be some interesting moves as a result of that paper.

I think this whole piece around the value of advice again is coming to the fore and particularly this whole question around clients paying an ongoing charge, will we reach a point where actually the ambulance chasers come out and ask clients, 'Are you paying 1% for four meetings a year and do you get them? Let us help you with that.'

I think demonstrating ongoing value and obviously I alluded to that earlier in the podcast. We've all seen the value assessments that asset managers have had to undergo over the last couple of years and that's now just a part of our life. To what extent will those kinds of assessments start to apply to financial advisers? I think that might be an interesting one to debate.

I think obviously ESG we've got regulation heading in our direction there, not just in the taxonomy but also in terms of having to discuss sustainability preferences with clients and that's a really interesting one, isn't it, for you and I in terms of how do we make sure that advisers then having discussed the preferences have the right investment solutions at our finger tips to help advisers with, yes?

Again, I always talk about if the questions are framed in the wrong way, like what do you not want to invest in, unless we can offer a client a bespoke portfolio then we're in interesting territory, aren't we, with multi-asset solutions like model portfolios, for example, where they might not meet for various reasons everybody's requirements, particularly those who have quite specific requirements in terms of delivering positive impact. I think there's interesting times ahead, Simon in terms of regulatory.

Simon: It certainly sounds like that. Thankfully we've got most of those areas covered in terms of bespoke and models on all sorts of things haven’t we. We're in good shape.

Gillian: Yes, that and the education piece I think is really important. Equally and, again, this is something you do extremely well is a reporting piece. If we say that we as active owners of companies, how do we engage and what does stewardship look like? We've got to not just talk about what we do but we've got to demonstrate the positive changes that holding those companies and portfolios can make as those companies, many of which are transitioning.

Simon: Totally agree. One other demographic trend I'd like to finish on Gillian and you have looked at this increasingly I know, is the importance of women as advisery clients. Why do you think this is and do you think the industry is making the required progress in this particular area?

Gillian: Two great questions. The whole women piece came over my desk at the beginning of this year as part of the work I do and the research into wealth transfer. I mentioned earlier that 65% of people inheriting wealth will change adviser. When it's a female, typically a widow inheriting wealth, then that rises to 70% will change adviser.

Interestingly two-thirds of the baby boomer wealth is held in joint households and the first point of transfer is very often, and I'm always generalizing, but it's typically a husband to wife and that's why I talk about wealth transfer happening now. Don't just wait on it transferring to the millennials. This was a whole interesting angle on the wealth transfer piece.

By 2025 60% of the wealth in the UK will be in the hands of women, so what does that mean for adviser businesses if, as these women told us when we did the research, they felt disengaged? That advisers typically for many reasons spoke predominantly to their husbands and suddenly they get this wealth and they're not sure what to do with it, they're typically risk averse, they have a different view on passing on wealth.

Interestingly women are more likely to pass on wealth within their lifetime, as opposed to men who typically wait until they're no longer around. There's lots of interesting differences here and advisers often say, 'Gosh, this is new. Wow. This is something I hadn't even thought about in terms of how engaged am I with both partners? Do I just need to have a female adviser in the business?' The answer to that is no actually.

That might help for some cases but actually it's about understanding these women and understanding why they're different and how they want to be engaged differently. We've done a whole lot of research on that within Schroders, so we're always happy to share that with anybody who's interested in this as a topic, but I think this is one that's going to run for a while.

Simon: I think the key part from your sentence there is 'engagement' and that covers not just ladies as advisery clients but also as you were saying before, getting to know the children of existing clients. Engagement is absolutely key. Gillian, as always, it was a pleasure talking to you today. It's been great listening to you on a very interesting topic. Thank you very much for your time.

Gillian: Not at all. Always a pleasure to talk to you as well, Simon.

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