The future of financial advice is the hybrid model.
Driving market developments are technology and market forces.
Next generation advisers will have far more useful technology at their disposal, both client facing and business enhancing.
At the same time, according to global consultancy Alpha FMC, strong macro tailwinds, such as government policy to promote saving and investing, will help increase assets across UK financial services by £1trn to £2.9trn by 2025, c80% of which it expects to be advised*. This burgeoning market will open new opportunities – but also generate greater competition.
Those new opportunities can be tapped into using what is known as ‘hybrid advice’. At Wealth Wizards, we split the term into two parts: ‘consumer-led’ and ‘human-assisted’ for enhanced clarity on its meaning and value. ‘Consumer-led’ is where the guidance and advice are 100% automated or ‘codified’ and ‘human-assisted’ is where the advice is a blend of codified and human-based.
Our experience tells us that consumers want easily accessible financial support to help better understand their financial situation and improve their financial wellbeing, whether that’s guided outcomes, digital advice with some human oversight, or fully-fledged regulated advice.
Advice firms want a means to reduce their costs per client, increase the number of profitable clients per adviser, and to find a way to access the £1trn and more expected to enter the market over the next few years – they need a way to serve lower value clients profitably.
This is where consumer-led and human-assisted advice delivers on all counts.
In a nutshell, and using our Turo Wellbeing application to demonstrate, consumer-led guidance and advice offers a personalised, digital journey, which serves both lower and high value clients. Consumers are led through a guided process to either, 100% codified advice, fully aligned to the firm’s advice policy, or for consumers who have more complex financial needs, for example due to high levels of wealth or potential tax issues, an introduction to the human-assisted element, an adviser, for partial or fully-fledged advice.
Consumer-led advice can reduce costs per client by utilising machine learning and automation. Whether consumer-led or human assisted, the technology takes the heavy lifting out of the advice process – notably in data gathering, processing and suitability report writing – thus reducing manual intervention to where it is necessary, as well as enabling advisers to serve more clients.
By using consumer-led and human-assisted advice, firms can bring on new lower value clients profitably, with little or no intervention from an adviser, while still providing a quality service to their traditional HNW clients.
Not surprisingly, the anticipated growth in the market and the opportunities presented by the consumer-led and human-assisted advice approach is increasing competition in the marketplace. Banks and building societies are recognising its potential to offer digital advice to their lower value customer base while also attracting more higher value customers into their advice stream. And digital guidance and advice are also being deployed by pension companies and life assurers to engage with consumers and help them, for example, in retirement planning.
Consumer-led and human-assisted advice is proven to offer the financial services industry the ability to run more efficient, cost effective and profitable advice businesses, and to deliver better outcomes for consumers, while helping to improve financial wellbeing within the UK.
This makes it the advice model not just of the future but of today. The technology that the next generation of financial advisers will use day-to-day is here and rapidly being deployed by progressive advice firms. Within the next few years, we are certain that consumer-led and human-assisted advice services will be embraced by all large and progressive financial advice firms.
* Retail &Distribution Practice – Financial Advice Overview (Alpha FMC 2022).
This article was first published in FT Adviser on 6th September 2022 https://www.ftadviser.com/your-industry/2022/09/06/hybrid-advice-is-the-way-of-the-future/
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