By Anne Stagg, MD, Indicia
Retirement planning is very different to twenty years ago. People are living for longer and therefore have a different view of growing older and are preparing for the future. With the 2012 pension policy reforms – introduced to prevent retirees from getting locked into low pay-out annuities – there is a growing need for financial advice and products as people look to get more from their money.
Indicia has found that where high net worth individuals have the money to spend on professional financial advice, there is a segment of customers between the age of 50-64 who are middle income in net wealth terms and poorly served by financial brands. These customers are used to living with an above average salary and a high quality of life. Without the final salary pensions of the past and the low annuity and interest rates available, it will be much harder to maintain this lifestyle in retirement.
The opportunities in the retirement and pension area are growing for financial brands. It’s no longer all about the high net wealth individuals. The middle 40 per cent has emerged as an extended middle class with very distinct needs when it comes to maintaining their expected lifestyle into retirement.
Who are the forgotten 40 per cent?
We have analysed ONS’s latest Pension Trends Report to gain an understanding of the next generation of retirees in the UK (aged 50-64). The findings show that there is a huge disparity of wealth.
Most often prioritised by IFAs, the top 30 per cent are asset-rich consumers who have benefited most from rises in property value and boom periods in the share market since the 1980s. ONS’s figures show that the top 10 per cent alone have average net savings of £1.5bn. At the bottom, there is the 50-64 year old bracket, who own less than 1 per cent of the overall pot and will be far more reliant on a state pension.
The middle 40 per cent is far less clear. While only representing 20 per cent of the wealth in their age-group, they still have average net savings of £140,000. The majority of individuals within the middle 40 will not be able to guarantee a luxurious retirement, so they are arguably the group most in need of advice.
Understanding the needs of the forgotten 40 per cent
To understand how to provide the right advice to this group of consumers, it’s first important to look at how their attitudes towards life and retirement differ.
Those aged over 70 are generally focused on preserving savings to pass on to their family. The 50-70 age group, on the other hand, have accumulated household wealth and want to spend it on their lifestyle.
The middle 40 per cent differ to previous generations with higher expectations regarding their future living standards. As they expect to live longer, they have a much more long term perspective on life.
The Colour Report by McCarthy & Stone reveals interesting insights about the group and how they feel. The majority feel that old age starts at 70. 66 per cent of 65-69 year olds feel younger than their age and have higher levels of confidence and independence than previous generations.
This group do not want to slow down in retirement.
20 per cent of over-55 year olds have ambitions to travel and 83 per cent are exercising more since retirement. This age group feel that they still have a lot more to learn. They also have ambitions to give, but need increased financial stability for this ambition to be realised.
What is the opportunity for financial brands?
The Pensions Freedoms Act was designed to give individuals autonomy over their hard-earned savings. Initially this put individuals in the middle 40 per cent, front of mind.
In reality, the outcomes have been very different.
Instead, advisers are primarily focusing on the highest net worth investors, who are less likely to cause retribution in the future if investments tumble.
These factors have led to an advisory black hole, which is both a danger but also a massive opportunity for financial services brands.
How can financial brands engage the forgotten 40 per cent?
Currently, 80 per cent of consumers in this group feel that brands are missing out on them. There is therefore an opportunity to better understand this group and their specific needs, motivations and aspirations.
By undertaking quantitative research into this age group through our proprietary database, we have identified four segments within this group:
- Ten Years Younger: 50-55 age bracket with a younger attitude than other segments. This group are tech-hungry and eager to explore the world. Their attitude is most comparable to younger generations
- Fun & Games: Up for a chance. Don’t always manage their money well, but do give generously. They are likely to donate to charity and spend a lot of money on holidays and pets
- Home Comforts: Careful and secure, with little interest in culture or travel. This group like to stay close to home and are not interested in experiences or travel. They like routine and are risk-adverse
- Environmental Adventurers: Show interest in environmental issues and have an outward-looking attitude. They are passionate about wildlife and have an interest in the arts and culture.
By understanding the characteristics of customers on a deeper level, it’s far more likely that financial brands will be able to create products and provide the services they need to make important investment decisions.
First and foremost with this age group, it’s important to keep communications simple. The middle 40 per cent don’t require the most sophisticated flexibility, so brands should create easy to understand packages. Consumers have more flexibility and choice so brands need to offer easy to understand packages. Customers should be able to purchase easily when they do not want advice from financial advisers.
When targeting this group, financial brands should also adopt a new language to communicate with. For this age group, the focus needs to be on maintaining lifestyles rather than on financing and planning for later life. The clear message needs to focus on conveying how the FS product will help the individual enjoy life.
Lastly and most importantly perhaps, it is vital for brands to focus on building customer relationships and to create emotional connections and secure customer loyalty in the longer term. Brands need to become a partner for the customer, empowering them to become self-sufficient and help them to monitor their investments up to retirement.
Life doesn’t end at 50. The way in which individuals see retirement has changed. As such, the approach which brands need to take must also change. There is a huge opportunity to engage the forgotten 40 per cent if advisors address individuals’ needs fully and in a personal way. Financial brands need to offer the right investment products and advice to ensure consumers can continue enjoying and exploring life well into their 70s.
Younger generations drive UK alternative payment method adoption for online transactions
- 42% of Millennials and 35% of Generation Z feel confident using alternative payment methods, or have used them previously
- 81% of consumers agree security of their data and money is the most important aspect when choosing a payment method
UK London, 11th August 2020 – As the migration away from traditional payment methods in the UK accelerates, younger generations are leading the adoption of alternative payment methods (APMs) such as bank transfers and e-wallets, reveals a new study from PPRO. According to the findings, 42% of Millennials (born between 1980-1993) and 35% of Generation Z (born between 1994-2001) feel confident using, or have used, these methods of payment before.
In the UK, any payment method other than credit or debit cards is viewed as an alternative payment method (APM). However, across the globe, these forms of payment are considered local payment methods (LPMs) due to their broad adoption. In fact, there are over 450 significant local payment methods currently available worldwide, which account for more than 70% of global e-commerce transactions.
Ongoing COVID-19 restrictions have seen a surge in e-commerce in recent months, with many consumers forced to shop online for everyday goods. As a result, UK consumers have been more inclined to try a range of digital payment methods to enable a convenient transaction experience. Currently, 89% of UK consumers are confident using PayPal, whilst a further 31% express the same confidence in using mobile wallets such as Apple Pay or Google Pay. This form of payment is particularly high for younger generations, with 68% of Generation Z stating they use mobile wallet technology.
For younger generations, seeing a buzz about new payment methods in the news and on social media has been a key driving force for local payment adoption, 31% of Generation Z consider this the biggest motivation to try new payment methods. For Millennials, 37% said that merchant acceptance is their main driver.
For the overall UK population, however, security was ranked the top adoption driver, even above reputable brand image, with over half (59%) of UK consumers stating security is the most important influence on their usage of new payment methods. This highlights the growing need for online merchants, Payment Service Providers and FinTechs to address consumer perceptions around trust and assure the security of payment methods at checkout.
“Local payment methods, such as direct bank transfers and pay later schemes, are considered new ways to pay in the UK. However, for online merchants that sell to consumers across borders, these local methods are the norm and must be offered at the check out to reach international consumers,” comments James Booth, VP Head of Partnerships, EMEA at PPRO.
“Traditionally, the UK and US alike have stuck to using credit and debit card payments for online transactions. However, for merchants, local payment methods (LPMs) are much more secure in comparison to card payments, due to chargebacks and being prone to digital theft and fraud. LPMs, such as bank transfers, are more secure and a lot cheaper for merchants to process,” adds Booth.
Teaching children about wealth management and why there has never been a better time
By Annabel Bosman is Managing Director and Head of Relationship Management at RBC Wealth Management
As we approach the end of week sixteen in lockdown, I am breathing a sigh of relief at having successfully navigated another week of juggling work and client commitments with the increasing demands of my children – age six and nine.
My day job is to lead RBC Wealth Management International’s relationship management efforts in the British Isles, but my toughest challenge right now is educating and entertaining my new junior co-workers each day.
While my children’s school has done a great job at setting up daily tasks and learning activities, there is only so much ‘teaching’ they can take from me without World War III breaking out. So instead of rigidly sticking to the school curriculum each day, I have taken the opportunity to educate my young children about a topic that is often not discussed enough in school — money.
What I do for a living has become a central discussion in our co-working space — also known as the dining table. I have found that investment concepts can be grasped quite well by young children and this has led to some interesting conversations about which businesses are doing well in the current situation, and those that are not. Children are often more logical than adults, and in my house, this logic is helping them grasp the basics of an investment philosophy. As a result, I have even passed conversations around stock markets off as maths classes!
For young children like my own, helping them learn the basics of managing money is something that will hopefully set them up well in life. There are some great tools to help them do this – we use GoHenry, which provides children with a pre-paid card to learn about budgeting. Likewise, encouraging conversations around how they spend virtual money whilst gaming on apps like Roblox can give some really important lessons around how you look after the money you have earned – and how if something seems to be too good to be true, it probably is.
The most important thing is not to underestimate your children. Whether it is the application of a “mummy-tax” when they want chocolate or applying interest rates (albeit nominal!) if they want to borrow money, teaching our children the basics around money is something we can all do.
Incorporating new lessons
The first step is to identify the best way to approach teaching these topics in a way they will understand. Resources such as the Usborne Money for Beginners are really helpful to start conversations. There are also several YouTube clips and even TikTok channels dedicated to helping children think about money. I tend to think about what is important to them and use that as a catalyst to start conversations; for example, it could be how they can monetise their love of the gaming app Roblox.
Ending the taboo
Any conversation that leads to a greater awareness around financial discipline and security has to be a positive, no matter what the age – and there are certainly parallels with my experience and that of my clients. There seems to have been a shift in HNW and UHNW families’ willingness to talk about money. Whereas previously it was seen as very un-British to speak about money, the pandemic has meant that a more open conversation is taking place.
Whatever our financial position, we often bury our heads in the sand when it comes to money, and don’t always have a clear financial plan, but when we start to put down on paper what’s going in and out, we immediately start to feel more in control, thus becoming more engaged. It can be uncomfortable to have that conversation with your family, but we regularly speak with our clients about all manner of sensitive subjects including putting wills in place, inheritance and protecting loved ones. Naturally, this is also bringing conversations to the fore around succession planning, legacy, philanthropy and even one’s own mortality. When times are good, it’s easy to not have these thoughts at the forefront of your mind, but in challenging times like these, it highlights how essential it is to talk. And just as with my children, there are plenty of apps and websites that can help you take the first steps.
Varying generational approaches
There is no one way to educate your children about money — what worked for one generation will not necessarily work for the next. Different generations have had to address the different approaches they might take in thinking about money and try to reach a common language to agree on common goals. Whilst many of us grew up with physical pocket money from our parents after completing household chores, today’s young children rarely even touch money, they receive their allowance on an app.
A 2019 study commissioned by RBC Wealth Management and conducted by The Economist Intelligence Unit found that seven in ten younger affluent respondents think that their beliefs about wealth are very different to those of their parents; with a similar percentage, 78%, believing that wealth is less easily attained or preserved today. Early, open and continuous dialogue can only help confront obstacles head on and smooth the path ahead.
These talks also allow HNW individuals and their families to talk about how they can address their non-financial goals, such as fighting climate change or supporting social agendas – something that the younger generation is acutely focussed on. Indeed, more recent social events have led to an ongoing and overdue debate around what privilege looks like and how society needs to change.
With the summer holidays fast approaching, the struggle to keep children occupied will continue, but without the pressure of the school curriculum. This is an opportunity to continue discussions with children about where money comes from and where its value lies.
I have found it tremendously empowering to talk to my children about money and getting back to basics — it may not be school learning, but it is real life learning. And as I say to my clients, the initial step to start a conversation is always the hardest.
From accountants to advisors: changing roles and expectations
By Chris Downing, Director for Accountants & Bookkeepers at Sage
The line between strategic advisor and traditional accountant is blurring. Over the last year, 82% of accountants said their clients were demanding a wider service offering, including business and technology implementation advice. In the current climate this transition has only been accelerated.
Clients increasingly expect their accountants to take a more active role in change management and predicting their cashflow months into an uncertain future. This is enabling businesses to tackle the challenges of day-to-day operations, while keeping an eye on what the post-COVID world will look like, and the support they will need to return to strength.
To solve these new and complex, expectations accountants must develop a different way of working. They will be required to increasingly supplement the traditional, compliance and reporting aspects of their work with business advice and consultancy. To do this, accountants need the ability to move quickly and efficiently, with a firm grounding in technology and data control.
Get straight to the point
The priorities of yesterday are very different to the goals of today. Where businesses once focused on driving growth and efficiency, the objective for many now is continuity – understanding what government support is available and for how long. In the current climate, speed of delivery and client care are top of the agenda.
But the way accountants go about this is very important. Rules are changing every day – the definition of an ‘essential business’, government support and bank loan programmes are constantly in flux. In normal times, an accountant’s role is to ensure their clients are aware of and reactant to these changes. Yet, how much value does this create for them in the ‘now’?
To be valuable, new information must be delivered quickly but it should also be succinct. It isn’t useful for clients to be bombarded with email updates, or reports running into hundreds of pages, trying to explain the week’s changes. With so much present noise, it’s the accountant’s task to break through the information overload and provide the client with crucial resource only.
To understand client pain points and get to the heart of what they really need, a running dialogue is essential. Building individual client relationships will unlock the potential to deliver tailored experiences that meet their business demands. Armed with this insight, accountants can then distil complex information into digestible chunks.
A more entrepreneurial spirit
Sharing insight is only the start. The other half of the story relies on consultancy. In the Covid-19 environment, the routine aspects of an accountant’s work are being supplemented with the transformative changes they can make for clients. Cashflow projections for the next six months are crucial, but even more so is the advice an accountant can offer on improving the financial outlook of a business.
To provide this balance, accountants should embrace a more entrepreneurial way of thinking. Not only advising on how clients can meet current challenges, but also how they can innovate to drive new revenue streams in the future. Part of this means being willing to step outside of their comfort zone. Many firms are already investing in the skills and technologies they need to service novel demands – like advising on relevant accounting and finance technologies.
While many businesses remain closed to the public, even as lockdown eases, they have increased capacity and flexibility to shift operations towards what will be most effective and profitable. Clients will be open to changing their business focus to meet demand spikes in other areas as they do not have to account for a disruption to customer service. For example, many distillers shifted production from beverages to hand sanitiser while bars and restaurants were closed.
With their contextual understanding of client finances, accountants are uniquely placed to advise their clients on change and guide them through the transformation process. Though this requires a more innovative model of accounting, and one that is willing to embrace the latest technologies.
Truth in the cloud
Business advice needs to be backed by data, especially for accountants engaging directly with the CFO. Scenarios need to be modelled, analysed, tracked and compared over time to arrive at the most effective proposal for the client. This is outside the wheelhouse of traditional accounting, but it’s becoming necessary in an industry heavily disrupted by new technologies.
To keep up with the ever-growing need for rapidly available data and analytics capabilities, more and more accountants are turning to the cloud to consolidate and use their data estate, while automating the time-consuming tasks of data management. Indeed, the majority (91%) of accountants have said new technology has delivered fresh value to their business in the last year, whether it increases productivity or frees up more time to focus on client needs.
Against the backdrop of coronavirus and technological disruption, a new breed of accountant is quickly emerging. Innovation is possible for those who stay ahead of client expectations and are aware of their needs, embrace an entrepreneurial mindset and adopt the latest cloud and automation technologies. In this way, an accountant becomes an integral part of their client’s business.
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