Has Covid-19 changed financial planning forever?

A crisis often presents both tragedy and opportunity.


The Spanish Flu of 1918 was the deadliest pandemic in history. Estimates are that over 50-million people died or 3 to 4% of the global population. Over 60% of the South African population was infected with between 300 000 and 350 000 people dying. According to Howard Philip[1], a South African historian of epidemics, South Africa’s estimated mortality rate of 4.4% made it the fourth worst-hit country in the world after Western Samoa (22%), India (6.2%) and Gambia (5.7%).

Mortality from the Spanish Flu mainly afflicted those aged 18 to 35. Many young families were left destitute by the death of a breadwinner and many children were orphaned. It took a tragedy of this nature to “drive home the need for life insurance with extraordinary sharpness”[2]. Life insurance had been available in South Africa since 1835 but the Spanish Flu boosted the industry to the next level. Arguably it did the same for financial advice in the form of the insurance broker, the primary distribution channel for life insurance.

Many clients still see their insurance broker as their financial planner. But the two are not the same. I believe the Covid-19 pandemic provides the opportunity to clarify this once and for all.

According to the World Economic Forum[3], anyone with the job title “broker” will become redundant in the 21st century. Technology is disintermediating brokers at a rapid rate. As Melitta Ngalonkulu puts it, “The Covid-19 crisis has triggered an unexpected change in the insurance industry. Aside from making people more aware of their mortality, it’s also seeing them get cover through digital channels”[4].

Ngalonkulu reports that one local digital provider of life insurance has seen a 40% increase in business during the pandemic. What the World Economic Forum predicted is happening. It means selling, masquerading as financial planning, is on the way out. But I believe Covid-19’s impact could be even more dramatic than simply adding impetus to this shift. I think it could redefine the role of the financial planner, just as the Spanish Flu redefined the role of life insurance in people’s lives.

The World Uncertainty Index is now at unprecedented levels, double that of the 2008 Global Financial Crisis. It is no surprise then that a recent FPI Survey[5] of financial advisors found that 80% of respondents said their clients are “stressed” or “very stressed”. Research by Gallup[6] suggests that levels of worry and stress have risen dramatically in the United States. Recently I have worked with various groups of financial planners, most of whom indicated their clients were experiencing real emotional exposure.

Financial risk, too, is now at levels perhaps never seen before. Unemployment is at record levels around the world. Even your clients who have not lost their jobs or businesses are probably concerned about savings and investments. 58% of the FPI survey respondents reported that their clients have raised concerns about unemployment or reduced income; debt management and protection of assets.

Empathy drives connection, and emotional connection is what clients are desperately needing in the wake of Covid-19

Neuroscientists tell us we are emotional creatures who try to think. The response globally to the Covid-19 pandemic is evidence of this. Panic buying of toilet paper perhaps best captures the emotions of panic and fear that unfolded around the world. The S&P 500 had its fastest fall into the bear market territory in history. Physical and financial risk combined with fear. A lethal cocktail of vulnerability. Brené Brown, researcher and author whose TED Talk on the power of vulnerability is one of the most viewed YouTube TED Talks ever, suggests that a combination of “uncertainty, risk and emotional exposure” equals vulnerability[7]. Few have escaped this feeling during the pandemic.

We have probably experienced, for the first time, a dose of collective global vulnerability. Prompted by information overload and international travel that helped the virus travel to almost all corners of the world. The last time large sectors of society shut down in this way was during the Second World War. But the effect was only on certain parts of the world. And even countries in the heart of the conflict, such as Britain, were able to send their children off to the countryside to escape the traumas of the war. In 2020, children have been in lockdown around the world. There has been no escape from the impact of Covid-19. This experience of collective vulnerability presents the challenge and the opportunity for financial planners to redefine their role with clients.

Recent research by PortfolioMetrix[8] suggests that financial advisors believe empathy is the most important attribute or service that they offer clients. This makes sense as Brené Brown suggests a remedy for vulnerability is empathy. She believes empathy drives connection, and emotional connection is what clients are desperately needing in the wake of Covid-19.

Pre-pandemic research by Morningstar[9] found that financial advisors believe that helping their clients stay in control of their emotions is a key service they offer clients. In contrast, the research found that investors rated “Helps me stay in control of my emotions” the least important of 15 attributes of a financial advisor’s service. Before the pandemic, clients – it seemed – valued technical skills over human skills.

Yet, there is much behavioural finance research to show how investors’ emotions get the better of them when investing and working towards financial goals. The importance of this work is reflected in the fact that in the past 20 years, three experts in the field: Daniel Kahneman, Vernon Smith and Richard Thaler have received the Nobel Prize for Economics for their work in the field. It seems that clients don’t know what the experts know…yet.

The challenge for financial planners is to demonstrate to clients how important human skills are to the service they provide. The collective vulnerability we have all experienced in the Covid-19 pandemic may just have made that challenge a little easier.

Rob Macdonald, Head of Strategic Advisory Services at Fundhouse.

Spanish Flu accelerated the growth of the life insurance industry, and Covid-19 will remind us again of the importance of life insurance, but that’s not all. It has magnified what it means to be human.

We are emotional creatures. We are social creatures. We crave connection. We can experience collective vulnerability. And how we feel impacts the decisions we make about our life and our money.

The Covid-19 pandemic has clarified for us that it is a non-negotiable for financial planners to develop the human skills that help clients not only manage their emotions but make and implement sensible decisions about their life and money. And for the clients of financial planners who don’t have these human skills, the choice to go the Robo advice route will be easy.

[1] ‘Black October’: The Impact of the Spanish Influenza Epidemic of 1918 on South Africa. By Howard Phillips, Archives Year Book for South African History, Government Printer, Pretoria, 1990.
[2] Assessing the Impact of a Pandemic on the Life Assurance Industry in South Africa. A paper by Andre Dreyer, Grete Kritzinger and Jethro de Decker, presented to the 1st IAA Colloquium, 10-13 June, 2007, Stockholm, Sweden.
[3] The Future of Jobs Report. The World Economic Forum, 2018.
[4] Covid-19 is shaking up the insurance sector. Article by Melitta Ngalonkulu published on Moneyweb, 23 June 2020.
[5] The Impact of Covid-19 on CFP© Professionals and their Clients. Financial Planning Institute of Southern Africa. April 2020.
[6] Gallup Health and Wellbeing Index & Gallup Panel, 2019 & 2020.
[7] Dare to Lead. Brené Brown. Penguin, Random House, London. 2018.
[8] The Insider’s Guide to the Value of Advice. A PortfolioMetrix White Paper. May 2020.
[9] The Value of Advice. What Investors Think, What Advisors Think, and How Everyone Can Get on the Same Page. Morningstar. The Investor Success Project. 2019