“...the phenomenon of a linear life from 50-onwards is no more.”
The industry is all too aware of the growing numbers of older customers and how wealth ownership is changing – but how it adapts to the new client landscape is not so clear-cut, especially as the pause button on creating financial products for care funding is hit until government policy for long-term care is clarified.
But there is plenty of ground to be explored in the here-and-now, and opportunities for the financial services sector to respond to the demographic shift, Legal & General’s John Godfrey argues. It will just take a rebalance of assumed priorities to get there.
“Historically, most businesses would target 75% of their marketing budget at Millennials as a more exciting prospect – but they don’t have much money,” Godfrey states, adding that consumer bases are often segmented into a dozen or so disparate groups, and often just one bucket designated for the over 60s. “The difference between someone who’s 61 and 91 is pretty huge, so I think we’re going to see a big growth in sophistication there.”
The financial services industry is only just starting to look at how it can service the needs of an increasingly complex market as clients get older, with the rise of retail defined contribution pension products, the need to generate new income and assets and dealing with housing and long-term care. “We’re very product-led as an industry, and what we haven’t looked at yet is how the phenomenon of a linear life from 50-onwards is no more,” Godfrey says.
“Families are more complicated, and no longer necessarily nuclear. Careers are very different – most people starting work now might expect to have a dozen different jobs, including perhaps some freelancing or self-employment. And people might assume that at some point they’ll have to stop working and re-train. Because for people starting now with 40-50 years of work ahead of them, the workplace is going to be very different than it is today. They’ll be doing jobs that haven’t been thought of yet.” Indeed, this new normal may require individuals to deepen their financial management, and to get more advice. “Where do, and will, people get advice on things like shared ownership, complex multiple pensions, treating a house as just another asset or not owning property at all? At the moment, the aversion to regulatory risks means there isn’t much affordable advice on the high street,” Godfrey says. “It’s a big gap, especially as lives become more complicated.”
Technology here may be a seminal tool. When it comes to customer guidance and advice, “digital interaction gets better and better, and people get better and better at doing it, and equally firms get better at providing it,” Godfrey says, outlining a two-prong approach of how models might evolve with fintech. “Firstly, the market solutions will come forward – whether that’s entirely robo, or whether it’s what they call ‘cyborg advice’ (i.e., a robo component with a human that can step in) he states. “The other bit you probably need alongside that is a more systematic approach of engaging individuals. People don’t like the language but it sums it up nicely, it’s the Mid-Life M.O.T. This would be rather than waiting until the point where you need advice, there are certain way-points where you’re not compelled but strongly nudged into having an assessment and getting advice. It’s like public health screening – typically easier to address these things in a preventive way rather than waiting for a cure. It’s something for society to do and there’s a role for the industry in that process.”
“For most people, a lot of this stuff is incomprehensible and potentially really boring. There’s always something more entertaining or important to do on a Sunday. We have to make a better case for joining up what happens to your money when you put it into your savings and long-term investments. It doesn’t just vanish into the City or Canary Wharf somewhere, so let’s show how that money is being invested in local communities,” Godfrey states.
“If I was a retired person sitting in Salford for example, I might find it interesting to know that a bit of the pension I’m expecting to receive at some point is meanwhile earning a reasonable rate of return by funding a piece of infrastructure which my children can go to work on, or investing in the company which employs them. It’s connecting them to the real economy.”