The financial advisory sector has seen much change in the past few years, much of it driven by new technologies and a wave of new market entrants. While we are seeing consolidation and innovation in response, this is just the start. So if you thought the merry-go-round was slowing down, then grab hold tightly because it is only going to accelerate.
What we do know is that change brings with it opportunities and, in order to build a picture of where these opportunities lie, we need to examine the component parts - the reality for our clients, influences on the market and those who are successfully demonstrating how to win in a rapidly evolving environment through collaboration and partnerships. ‘Fintegration' - the integration with fintech services - is emerging as an important factor.
At one end of the client scale is the millennial generation, the upper end of which is approaching the start of their peak-earning years and so cannot be ignored. At the other end, meanwhile, the baby-boomers are rapidly hurtling towards retirement and seeking out last-minute solutions to boost their retirement income.
What is common to both groups is their appetite for financial online and digital services - from online banking and mortgage management to peer-to-peer lending platforms. But what is next? There is no doubt we will shortly see the fully integrated dashboard becoming commonplace.
The dashboard will display all of the end-user's headline accumulated assets and wealth - possibly involving a series of barometers showing assets and annual savings/retirement targets, as well as real-time progress to date. Prompts and alerts will advise when specific (defined benefit transfer review, say) or regular (such as annual reviews) actions should be taken or when deadlines such as the financial year-end are approaching.
Then there will be in-built tax calculators to show the effects of things such as taking bonus, pay or other earned income as pay or the benefits of allocating to savings pots. Reviewing protection cover, mortgage advice or equity release benefits will also be included.
The dashboard approach very much sings with our own Wealth Wizards mantra of a ‘financial adviser in your pocket' - fully regulated advice built into the technology and data processing journey to ensure consumers are fully protected while receiving the best cost-effective and professional support. This is so important at a time when consumers are bemoaning their small savings and retirement pots.
With this in mind, the focus of the advisory sector should be on providing accessible advice with the consumers' best interests at heart. That means streamlining the whole industry for the consumers' gain by demystifying jargon, reducing costs, increasing access and improving returns. If we can jointly set these as our values and aims, we will materially impact society by reducing the savings gap and increasing the wealth of everyone rather than the few.
Working Smarter, Not Harder
Shaping the sector so it is fit for purpose and providing cost-effective, regulated advice available to the many rather than the few requires a new way of thinking. Historically, banks and financial institutions have taken a stance of ‘self-build' in order to develop home-grown solutions.
This may have been acceptable in an age where financial advice was the privilege of the higher net worth individual. The speed of technological innovation is outstripping the pace of change within larger organisations, however, putting them under pressure to come up with a new way of adopting new advice solutions.
These organisations possess a major advantage when it comes to consumers - they have their trust and their reach but lack the innovation required to provide the financial service solutions their consumers demand. Existing providers and fintechs are increasingly working together to bring innovations and efficiencies to market, including HSBC & Bud, Smart Pensions and Legal & General and Wealth Wizards and LV=.
Some of the new banks such as Monzo and Starling Bank have signalled they too are looking at partnership opportunities. For back-office systems, one excellent example of collaboration is Intelliflo, which is building an eco-system around Intelligent Office with access to multiple third-party services.
It is clear therefore the long-term winners will be organisations that recognise what they excel at and then collaborate with complementary service providers to deliver compelling 'end-to-end' solutions their customers love. What we will see is an increase in partnerships between the old and the new as the more nimble-minded and creative fintech providers join forces with the giants of today to deliver trailblazing, fully-regulated advisory solutions.
As technology entices more and more consumers to trust online and robo-advisory services, the demand for professional, fully-regulated online advice will increase. Consumers who would not have taken an advice route previously will be attracted by the fact they can access affordable, intuitive and compelling advice solutions.
This provides a particular opportunity for advisers to capitalise on the ‘normalisation' of financial advice. In reality, however, the only way advisers will be able to meet the demands of this new expanding sector is through automation to support them - that is, automation designed to do the heavy lifting such as the management of compliance and risk. In turn, advisory firms will find it easier to scale their business rapidly and effectively.
But we are currently facing a huge advice gap with adviser numbers shrinking by around 90% over the last couple of decades. In the medium term, therefore, the opportunity is to actually grow the advisory landscape and attract new talent into the business by demonstrating the sector is innovative and forward-thinking. Millennials will largely be the target, and they will want to see technology deployed to enable them to deliver their expertise more efficiently, and assist them in driving incomes for their customers.
Next month sees the PSD2 come into effect, the main scope of which is to encourage new players to enter the payment market - and it does this by mandating banks to ‘open up the bank account' to external parties. These third party players will, for example, be able to see how much money a user is saving each month from their income, and provide tailored advice based on their spending patterns.
PSD2 will boost the development of new interfaces designed to promote open systems and data sharing. Ultimately there will be a recognition across all areas that customer data belongs to the customer and they will need to be given access to it and be able to share it conveniently and digitally.
This opens up the possibility for new categories of service provision and added value. The key currency to encourage clients to share data will then be trust - that the data can be held securely and used for the client's best interest. This is where fee-based advisory firms could have the strong advantage.
Sharks In The Water
In the short term, the likes of Facebook, Apple, Microsoft, Google and Amazon - the so-called ‘FAMGA' giants - are likely to be cautious around highly regulated and capital intensive areas of financial services, having mainly focused on payments for their initial expansion opportunity.
They will undoubtedly, however, be looking at digital plays in other areas of financial services - for example, Amazon could be gearing up for a move into the broader insurance market with its Amazon Protect offer. The advantage FAMGA has is the credibility of trusted brands with enormous reach - think Facebook, with its more than two billion active users.
Another factor is FAMGA is bringing huge resources to bear on artificial intelligence, which will potentially bring capabilities likely to be disruptive to financial services generally - while serving clients in particular as it emerges. These giants have the ability to grow the sector quickly and, in order to benefit from this opportunity, existing advisory groups must innovate rapidly by partnering with those at the forefront of robo-advice to create a level playing field for themselves.
The future is more certain than you might think. What is clear is that, together we can shape a strong, competitive advice sector by recognising we all bring different strengths to the table - from fintech and robo-advisers to long-standing advisory companies with thousands of clients.
Through collaboration, we can deliver excellence in fully-regulated advice that works for both existing clients and for a new market and a new generation of tech-savvy savers and investors looking for convenience and affordability; and for many, advice for the first time. This is a model that will not only ensure the ongoing success of advice firms, but also contribute to increasing the wealth of the whole nation.
This article has also appeared in Professional Adviser