The news is full of stories at the moment concerning first home buyers being priced out of the market – no surprises there really, with prospective home owners now having to borrow around six times their salary just to get on the property ladder.
But it got me thinking, if home ownership is becoming a distant dream to an increasing number of people, what does the financial planning landscape look like now for the younger generation?
Houses have always been the ‘traditional’ asset class and considered a sound investment for the future. You bought a home, paid off a home loan over time and then took the equity out of your homes to invest in later years. But, if this isn’t going to be a realistic option for many people, the challenge many financial planners are facing is which other asset classes offer an attractive wealth building alternative.
Some may point to superannuation – although with the tax free cap at $25K per annum, there is limited potential. There’s still room for improvement in the equities market, and the global markets do appear stronger, but the memories of the GFC mean that people are still shying away from this approach. And then there’s cash, a safe bet in an investment strategy and an essential part of diversification in a wealth building portfolio.
There’s been a strong trend towards cash in the past 5 years for good reason. It’s performed strongly against other asset classes, it’s a secure investment, and you need cash at every life stage – whether you’re paying, saving, borrowing, investing or retiring. Of course, diversification is important so relying on cash alone won’t be sufficient. But for people just starting out in life and planning their futures, it’s particularly relevant if we take a holistic view of their finances.
We’ve also noticed a definite shift in how this segment views the role of the professionals in the financial planning space. I regularly watch my son play soccer, and it’s so interesting to observe now how he takes and weighs up advice from the coach. Sure, he takes some of it onboard but it’s no longer his primary influence – he tracks what the professional players do; watching and studying them, he seeks out information and signs up for soccer camps and clinics, and listens to what his friends are saying.
It’s the same when it comes to financial planning – younger people are a lot more clued up these days and comfortable taking advice from a wide range of sources.
If there’s one thing I’ve learned it’s that the financial planning industry carries a lot of legacies. My uncle was a financial planner and the approach he used many years ago is still the approach I all too often see today. That said, I do believe there is still room for financial planners to add value. But the challenge is, how does the industry, which has stayed the same all these years, modernise and attract a new generation of self-directed, educated people?
Planners are having to adapt their approach in how they think and deal with people. Some of the best planners I’ve met are those who have limited practical financial experience – they’ve passed exams and know the theory – but they’ve created new and fresh business models which have more relevance to people today. It’s the digital age and the industry needs to adapt, analyse their market segments and how to cater to them.
And the landscape will continue to change, it has to. I’m already looking at my son, in year 6, and wondering at what point does this become relevant to him? Being able to adapt is key to the sustainability of the financial planning industry in the long term.
- Mark Woolnough is ING Direct’s head of third party distribution